Excellence Commercial Property & Facilities Management Group Limited's (HKG:6989) 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.

Check out our latest analysis for Excellence Commercial Property & Facilities Management Group

Examining Cashflow Against Excellence Commercial Property & Facilities Management 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. 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. 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 December 2021, Excellence Commercial Property & Facilities Management Group recorded an accrual ratio of -0.89. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of CN¥792m during the period, dwarfing its reported profit of CN¥510.1m. Excellence Commercial Property & Facilities Management Group's free cash flow improved over the last year, which is generally good to see.

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 Excellence Commercial Property & Facilities Management Group's Profit Performance

Happily for shareholders, Excellence Commercial Property & Facilities Management Group produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Excellence Commercial Property & Facilities Management Group's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 24% over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Excellence Commercial Property & Facilities Management Group has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Excellence Commercial Property & Facilities Management Group's profit. 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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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.