Even though Zhang Jia Gang Freetrade Science&Technology Group Co.,Ltd.'s (SHSE:600794) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

A Closer Look At Zhang Jia Gang Freetrade Science&Technology GroupLtd's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. 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.

For the year to March 2024, Zhang Jia Gang Freetrade Science&Technology GroupLtd had an accrual ratio of -0.11. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. To wit, it produced free cash flow of CN¥509m during the period, dwarfing its reported profit of CN¥260.5m. Zhang Jia Gang Freetrade Science&Technology GroupLtd shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 Zhang Jia Gang Freetrade Science&Technology GroupLtd's Profit Performance

Zhang Jia Gang Freetrade Science&Technology GroupLtd's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Zhang Jia Gang Freetrade Science&Technology GroupLtd's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 18% annually, over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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 - Zhang Jia Gang Freetrade Science&Technology GroupLtd has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Zhang Jia Gang Freetrade Science&Technology GroupLtd's profit. 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. 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.