Arcadyan Technology's (TWSE:3596) Solid Earnings Are Supported By Other Strong Factors

Arcadyan Technology Corporation's (TWSE:3596) strong earnings report was rewarded with a positive stock price move. We did some digging and found some further encouraging factors that investors will like.

View our latest analysis for Arcadyan Technology

A Closer Look At Arcadyan Technology'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). 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. The ratio shows us how much a company's profit exceeds its FCF.

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. 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, Arcadyan Technology recorded an accrual ratio of -0.44. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of NT$5.6b in the last year, which was a lot more than its statutory profit of NT$2.53b. Arcadyan Technology's free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons.

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 Arcadyan Technology's Profit Performance

Happily for shareholders, Arcadyan Technology produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Arcadyan Technology's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 28% annually, over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 1 warning sign for Arcadyan Technology and you'll want to know about it.

This note has only looked at a single factor that sheds light on the nature of Arcadyan Technology'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 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.