Mama's Creations' (NASDAQ:MAMA) Earnings May Just Be The Starting Point

Investors were underwhelmed by the solid earnings posted by Mama's Creations, Inc. (NASDAQ:MAMA) recently. We have done some analysis and have found some comforting factors beneath the profit numbers.

View our latest analysis for Mama's Creations

A Closer Look At Mama's Creations' 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. 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to April 2024, Mama's Creations recorded an accrual ratio of -0.37. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of US$12m, well over the US$5.69m it reported in profit. Mama's Creations 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 Mama's Creations' Profit Performance

Happily for shareholders, Mama's Creations produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Mama's Creations' statutory profit actually understates its earnings potential! And the EPS is up 57% 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. If you want to do dive deeper into Mama's Creations, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Mama's Creations you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Mama's Creations' 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.

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