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Shareholders Can Be Confident That ZoomInfo Technologies' (NASDAQ:ZI) Earnings Are High Quality
ZoomInfo Technologies Inc.'s (NASDAQ:ZI) strong earnings report was rewarded with a positive stock price move. We have done some analysis, and we found several positive factors beyond the profit numbers.
View our latest analysis for ZoomInfo Technologies
A Closer Look At ZoomInfo Technologies' 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). To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.
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 it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
ZoomInfo Technologies has an accrual ratio of -0.18 for the year to June 2021. 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$278m, well over the US$48.8m it reported in profit. ZoomInfo Technologies' free cash flow improved over the last year, which is generally good to see. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.
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.
The Impact Of Unusual Items On Profit
ZoomInfo Technologies' profit was reduced by unusual items worth US$25m in the last twelve months, and this helped it produce high cash conversion, as reflected by its unusual items. This is what you'd expect to see where a company has a non-cash charge reducing paper profits. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If ZoomInfo Technologies doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Our Take On ZoomInfo Technologies' Profit Performance
Considering both ZoomInfo Technologies' accrual ratio and its unusual items, we think its statutory earnings are unlikely to exaggerate the company's underlying earnings power. Looking at all these factors, we'd say that ZoomInfo Technologies' underlying earnings power is at least as good as the statutory numbers would make it seem. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 3 warning signs with ZoomInfo Technologies, and understanding them should be part of your investment process.
After our examination into the nature of ZoomInfo Technologies' profit, we've come away optimistic for the company. 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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What are the risks and opportunities for ZoomInfo Technologies?
ZoomInfo Technologies Inc., through its subsidiaries, provides go-to-market intelligence and engagement platform for sales and marketing teams in the United States and internationally.
Rewards
Trading at 33.7% below our estimate of its fair value
Earnings are forecast to grow 27.16% per year
Risks
Profit margins (5.8%) are lower than last year (15.6%)
Further research on
ZoomInfo Technologies
This article by Simply Wall St is general in nature. 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.
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About NasdaqGS:ZI
ZoomInfo Technologies
ZoomInfo Technologies Inc., through its subsidiaries, provides go-to-market intelligence and engagement platform for sales and marketing teams in the United States and internationally.
Reasonable growth potential with adequate balance sheet.
