Ranger Energy Services' (NYSE:RNGR) Performance Is Even Better Than Its Earnings Suggest

Ranger Energy Services, Inc.'s (NYSE:RNGR) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Ranger Energy Services

Zooming In On Ranger Energy Services' 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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

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

Ranger Energy Services has an accrual ratio of -0.11 for the year to December 2023. Therefore, its statutory earnings were quite a lot less than its free cashflow. In fact, it had free cash flow of US$54m in the last year, which was a lot more than its statutory profit of US$23.8m. Ranger Energy Services 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 Ranger Energy Services' Profit Performance

Ranger Energy Services' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that Ranger Energy Services' statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 47% in 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Ranger Energy Services has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Ranger Energy Services' 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. 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 that insiders are buying to be useful.

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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.