The Strong Earnings Posted By Brillian Network & Automation Integrated System (GTSM:6788) Are A Good Indication Of The Strength Of The Business

When companies post strong earnings, the stock generally performs well, just like Brillian Network & Automation Integrated System Co. Ltd.'s (GTSM:6788) stock has recently. Our analysis found some more factors that we think are good for shareholders.

Check out our latest analysis for Brillian Network & Automation Integrated System

A Closer Look At Brillian Network & Automation Integrated System'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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Brillian Network & Automation Integrated System has an accrual ratio of -0.16 for the year to December 2020. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of NT$215m during the period, dwarfing its reported profit of NT$160.0m. Brillian Network & Automation Integrated System'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 Brillian Network & Automation Integrated System.

Our Take On Brillian Network & Automation Integrated System's Profit Performance

Brillian Network & Automation Integrated System's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Brillian Network & Automation Integrated System's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 5.8% over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Brillian Network & Automation Integrated System.

Today we've zoomed in on a single data point to better understand the nature of Brillian Network & Automation Integrated System's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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