B & S International Holdings Ltd.'s (HKG:1705) strong earnings report was rewarded with a positive stock price move. We did some digging and found some further encouraging factors that investors will like.
Check out our latest analysis for B & S International Holdings
Examining Cashflow Against B & S International Holdings' Earnings
One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.
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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.
For the year to September 2023, B & S International Holdings had an accrual ratio of -0.33. 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 HK$62m, well over the HK$24.7m it reported in profit. B & S International Holdings' free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of B & S International Holdings.
Our Take On B & S International Holdings' Profit Performance
Happily for shareholders, B & S International Holdings produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think B & S International Holdings' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 68% over the last twelve months. 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'd like to know more about B & S International Holdings as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with B & S International Holdings, and understanding them should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of B & S International Holdings' 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.