Shareholders Can Be Confident That Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) Earnings Are High Quality

Even though Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

Examining Cashflow Against Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Loma Negra Compañía Industrial Argentina Sociedad Anónima has an accrual ratio of -0.13 for the year to December 2023. That indicates that its free cash flow was a fair bit more than its statutory profit. To wit, it produced free cash flow of AR$48b during the period, dwarfing its reported profit of AR$10.3b. Loma Negra Compañía Industrial Argentina Sociedad Anónima 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima's Profit Performance

As we discussed above, Loma Negra Compañía Industrial Argentina Sociedad Anónima has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Loma Negra Compañía Industrial Argentina Sociedad Anónima's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Loma Negra Compañía Industrial Argentina Sociedad Anónima is showing 2 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...

This note has only looked at a single factor that sheds light on the nature of Loma Negra Compañía Industrial Argentina Sociedad Anónima's profit. But there are plenty of other ways to inform your opinion of a company. 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.