Strong earnings weren't enough to please Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd.'s (SZSE:300029) shareholders over the last week. We did some analysis and believe that they might be concerned about some weak underlying factors.
See our latest analysis for Jiangsu Huasheng Tianlong PhotoelectricLtd
SZSE:300029 Earnings and Revenue History September 5th 2022
A Closer Look At Jiangsu Huasheng Tianlong PhotoelectricLtd's Earnings
In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.
That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. 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 June 2022, Jiangsu Huasheng Tianlong PhotoelectricLtd recorded an accrual ratio of 8.50. As a general rule, that bodes poorly for future profitability. And indeed, during the period the company didn't produce any free cash flow whatsoever. Over the last year it actually had negative free cash flow of CN¥57m, in contrast to the aforementioned profit of CN¥49.8m. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of CN¥57m, this year, indicates high risk. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio. The good news for shareholders is that Jiangsu Huasheng Tianlong PhotoelectricLtd's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF. As a result, some shareholders may be looking for stronger cash conversion in the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Huasheng Tianlong PhotoelectricLtd.
How Do Unusual Items Influence Profit?
The fact that the company had unusual items boosting profit by CN¥39m, in the last year, probably goes some way to explain why its accrual ratio was so weak. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that Jiangsu Huasheng Tianlong PhotoelectricLtd's positive unusual items were quite significant relative to its profit in the year to June 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On Jiangsu Huasheng Tianlong PhotoelectricLtd's Profit Performance
Summing up, Jiangsu Huasheng Tianlong PhotoelectricLtd received a nice boost to profit from unusual items, but could not match its paper profit with free cash flow. For all the reasons mentioned above, we think that, at a glance, Jiangsu Huasheng Tianlong PhotoelectricLtd's statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company. If you want to do dive deeper into Jiangsu Huasheng Tianlong PhotoelectricLtd, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Jiangsu Huasheng Tianlong PhotoelectricLtd, and understanding these should be part of your investment process.
In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
强劲的收入不足以让人满意江苏华胜天龙光电有限公司(SZSE:300029)过去一周的股东人数。我们做了一些分析,认为他们可能担心一些薄弱的潜在因素。
查看我们对江苏华胜天龙光电有限公司的最新分析
深交所:300029年9月5日盈利和收入历史
江苏华胜天龙光电股份有限公司盈利近况
在高端金融领域,衡量一家公司将报告利润转换为自由现金流(FCF)的程度的关键比率是应计比率(来自现金流)。简单地说,这个比率是从净利润中减去FCF,然后用这个数字除以该公司在此期间的平均运营资产。这一比率向我们展示了一家公司的利润超过其固定现金流的程度。
这意味着负的应计比率是一件好事,因为它表明该公司带来的自由现金流比其利润所暗示的要多。虽然应计比率为正并不是问题,这表明非现金利润达到了一定的水平,但高的应计比率可以说是一件坏事,因为它表明账面利润与现金流不匹配。值得注意的是,有一些学术证据表明,一般来说,高应计比率对短期利润来说不是一个好兆头。
截至2022年6月的12个月内,江苏华胜天龙光电有限公司的应计比率为8.50。一般来说,这对未来的盈利能力来说是个不好的预兆。事实上,在此期间,该公司没有产生任何自由现金流。在过去的一年里,它实际上负面自由现金流为5,700万元,而前述利润为4,980万元。在去年自由现金流为负的背景下,我们可以想象,一些股东可能会怀疑,该公司今年5700万加元的现金消耗是否意味着高风险。然而,这并不是需要考虑的全部问题。我们可以看到,不寻常的项目影响了其法定利润,从而影响了应计比率。对股东来说,好消息是,江苏华胜天龙光电股份有限公司去年的应计比率要好得多,因此今年的糟糕读数可能只是利润和FCF短期错配的一个例子。因此,一些股东可能希望在本年度实现更强劲的现金转换。
注:我们总是建议投资者检查资产负债表的实力。点击此处查看我们对江苏华胜天龙光电有限公司的资产负债表分析。
不寻常的项目如何影响利润?
该公司去年有一些不寻常的项目使利润增加了3900万加元,这一事实很可能在一定程度上解释了为什么其应计比率如此之低。我们不能否认,更高的利润通常会让我们保持乐观,但如果利润是可持续的,我们更愿意这样做。当我们分析了数千家上市公司的数据时,我们发现,在给定的一年中,不寻常的项目往往会带来提振不第二年又重复了一遍。考虑到这个名字,这并不令人惊讶。我们可以看到,江苏华胜天龙光电有限公司的积极异常项目与其截至2022年6月的年度利润相比相当重要。在其他条件不变的情况下,这可能会使法定利润成为衡量潜在盈利能力的糟糕指标。
我们对江苏华胜天龙光电有限公司盈利表现的看法
综上所述,江苏华胜天龙光电有限公司从异常项目中获利获得了不错的提振,但账面利润与自由现金流无法匹配。基于上述原因,我们认为,乍一看,江苏华胜天龙光电有限公司的法定利润可以被认为是低质量的,因为它们可能会给投资者带来对公司过于积极的印象。如果你真的想更深入地了解江苏华胜天龙光电有限公司,你也应该调查它目前面临的风险。在投资风险方面,我们已经确定了两个警告信号与江苏华胜天龙光电有限公司合作,了解这些应该是您投资过程的一部分。
在这篇文章中,我们研究了一些可能削弱利润数字效用的因素,我们对此持谨慎态度。但如果你有能力将注意力集中在细枝末节上,总会有更多的东西需要发现。例如,许多人认为高股本回报率是有利的商业经济指标,而另一些人则喜欢“跟着钱走”,寻找内部人士正在买入的股票。虽然这可能需要为您做一些研究,但您可能会发现免费拥有高股本回报率的公司的集合,或者是内部人士购买的有用的股票清单。
对这篇文章有什么反馈吗?担心内容吗? 保持联系直接与我们联系。或者,也可以给编辑组发电子邮件,地址是implywallst.com。
本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。