The Strong Earnings Posted By EQUINOX NEPREMICNINE d.d (LJSE:EQNX) Are A Good Indication Of The Strength Of The Business

Even though EQUINOX NEPREMICNINE d.d.'s (LJSE:EQNX) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

See our latest analysis for EQUINOX NEPREMICNINE d.d

A Closer Look At EQUINOX NEPREMICNINE d.d's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. The ratio shows us how much a company's profit exceeds its FCF.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to December 2024, EQUINOX NEPREMICNINE d.d recorded an accrual ratio of -0.12. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of €6.4m during the period, dwarfing its reported profit of €1.07m. EQUINOX NEPREMICNINE d.d's free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of EQUINOX NEPREMICNINE d.d.

Our Take On EQUINOX NEPREMICNINE d.d's Profit Performance

As we discussed above, EQUINOX NEPREMICNINE d.d has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that EQUINOX NEPREMICNINE d.d's statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about EQUINOX NEPREMICNINE d.d as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for EQUINOX NEPREMICNINE d.d you should be aware of.

This note has only looked at a single factor that sheds light on the nature of EQUINOX NEPREMICNINE d.d's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.