Weyco Group's (NASDAQ:WEYS) Solid Earnings Have Been Accounted For Conservatively

Despite posting healthy earnings, Weyco Group, Inc.'s (NASDAQ:WEYS ) stock has been quite weak. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for Weyco Group

Examining Cashflow Against Weyco Group's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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. The ratio shows us how much a company's profit exceeds its FCF.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to December 2023, Weyco Group recorded an accrual ratio of -0.32. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. In fact, it had free cash flow of US$95m in the last year, which was a lot more than its statutory profit of US$30.2m. Notably, Weyco Group had negative free cash flow last year, so the US$95m it produced this year was a welcome improvement.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Weyco Group.

Our Take On Weyco Group's Profit Performance

Happily for shareholders, Weyco Group produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Weyco Group's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. If you want to do dive deeper into Weyco Group, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Weyco Group you should know about.

This note has only looked at a single factor that sheds light on the nature of Weyco Group's profit. But there are plenty of other ways to inform your opinion of a company. 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.