VICOM SA (SGX: WJP) reported strong earnings, but the stock was stagnant. We did some research and found some factors of concern in the details.
See our latest analysis for VICOM
Focus on VICOM’s revenues
Many investors have not heard of the cash flow adjustment ratio, but it is actually a useful measure of the extent to which a company’s profit is supported by Free Cash Flow (FCF) over a given period. Simply put, this ratio subtracts FCF from net income and divides that number by the company’s average operating assets over that period. You could think of the accumulation ratio from cash flow as the ânon FCF profit ratioâ.
This means that a negative accrual ratio is a good thing, because it shows that the company is generating more free cash flow than its profits suggest. While it is not a problem to have a positive accumulation ratio, indicating a certain level of non-cash profits, a high accumulation ratio is arguably a bad thing, as it indicates that paper profits do not match. to cash flow. Notably, some academic evidence suggests that a high accrual ratio is a bad sign for short-term profits, in general.
VICOM has an accruals ratio of 0.22 for the year through June 2021. Therefore, we know that its free cash flow was significantly lower than its statutory profit, which is hardly a good thing. In fact, he had free cash flow of S $ 17 million last year, which was well below his statutory profit of S $ 26.8 million. VICOM’s free cash flow has actually declined over the past year, but it could rebound next year as free cash flow is often more volatile than accounting earnings. A positive point for VICOM shareholders is that its accumulation ratio was significantly better last year, giving reason to believe that it could return to a stronger cash conversion in the future. Shareholders should seek an improvement in cash flow relative to current year earnings, if this is indeed the case.
This might make you wonder what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our take on VICOM’s profit performance
VICOM hasn’t converted much of its earnings into free cash flow over the past year, which some investors may consider to be rather sub-optimal. Therefore, it seems possible to us that the true underlying profit power of VICOM is in fact lower than its statutory profit. The good news is that its earnings per share have increased 10% in the past year. Of course, we’ve only scratched the surface when it comes to analyzing his income; one could also consider margins, forecast growth and return on investment, among other factors. So, if you want to delve deeper into this title, it is crucial to consider the risks it faces. To help you, we have discovered 3 warning signs (2 cannot be ignored!) Which you should know before buying VICOM stock.
This memo has considered only one factor that sheds light on the nature of VICOM’s profit. But there are plenty of other ways to tell your opinion about a business. For example, many people see a high return on equity as an indication of a favorable business economy, while others like to “follow the money” and look for stocks that insiders are buying. So you might want to see this free a set of companies with a high return on equity, or that list of stocks that insiders buy.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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