Shareholders Can Be Confident That SIGA Technologies' (NASDAQ:SIGA) Earnings Are High Quality

When companies post strong earnings, the stock generally performs well, just like SIGA Technologies, Inc.'s (NASDAQ:SIGA) stock has recently. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for SIGA Technologies

Examining Cashflow Against SIGA Technologies' 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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.

For the year to December 2023, SIGA Technologies had an accrual ratio of -0.45. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of US$95m during the period, dwarfing its reported profit of US$68.1m. SIGA Technologies 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 SIGA Technologies' Profit Performance

Happily for shareholders, SIGA Technologies produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that SIGA Technologies' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS 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. If you want to do dive deeper into SIGA Technologies, you'd also look into what risks it is currently facing. While conducting our analysis, we found that SIGA Technologies 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 SIGA Technologies' 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 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.