Chenbro Micom (TWSE:8210) Is Posting Promising Earnings But The Good News Doesn’t Stop There

The stock was sluggish on the back of Chenbro Micom Co., Ltd.'s (TWSE:8210) recent earnings report. Our analysis suggests that there are some reasons for hope that investors should be aware of.

Check out our latest analysis for Chenbro Micom

Examining Cashflow Against Chenbro Micom's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. 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.

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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Chenbro Micom has an accrual ratio of -0.18 for the year to December 2023. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of NT$2.3b during the period, dwarfing its reported profit of NT$1.09b. Given that Chenbro Micom had negative free cash flow in the prior corresponding period, the trailing twelve month resul of NT$2.3b would seem to be a step in the right direction.

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 Chenbro Micom's Profit Performance

As we discussed above, Chenbro Micom's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Chenbro Micom's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 11% annually, over the last three years. 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 Chenbro Micom as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Chenbro Micom you should know about.

Today we've zoomed in on a single data point to better understand the nature of Chenbro Micom's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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. 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.