The Strong Earnings Posted By Power Wind Health Industry (TWSE:8462) Are A Good Indication Of The Strength Of The Business

The subdued stock price reaction suggests that Power Wind Health Industry Incorporated's (TWSE:8462) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Power Wind Health Industry

A Closer Look At Power Wind Health Industry's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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 September 2024, Power Wind Health Industry recorded an accrual ratio of -0.41. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of NT$1.2b during the period, dwarfing its reported profit of NT$288.0m. Power Wind Health Industry shareholders are no doubt pleased that free cash flow improved over the last twelve months.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Power Wind Health Industry's Profit Performance

As we discussed above, Power Wind Health Industry's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Power Wind Health Industry's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Power Wind Health Industry as a business, it's important to be aware of any risks it's facing. For example - Power Wind Health Industry has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Power Wind Health Industry's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.