IWS Group Holdings Limited's (HKG:6663) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.
SEHK:6663 Earnings and Revenue History July 12th 2024
Zooming In On IWS Group 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. 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. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. 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, IWS Group Holdings had an accrual ratio of 0.39. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. Even though it reported a profit of HK$13.7m, a look at free cash flow indicates it actually burnt through HK$32m in the last year. It's worth noting that IWS Group Holdings generated positive FCF of HK$45m a year ago, so at least they've done it in the past. One positive for IWS Group Holdings shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. 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 IWS Group Holdings.
Our Take On IWS Group Holdings' Profit Performance
As we discussed above, we think IWS Group Holdings' earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that IWS Group Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. Case in point: We've spotted 4 warning signs for IWS Group Holdings you should be mindful of and 2 of these can't be ignored.
This note has only looked at a single factor that sheds light on the nature of IWS Group Holdings' 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. 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 with significant insider holdings 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会（ASIC）の管理を受けております（AFSL No. 224663）。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会（ASIC）の管理を受けております（AFSL No. 224663）。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
For the year to March 2024, IWS Group Holdings had an accrual ratio of 0.39. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. Even though it reported a profit of HK$13.7m, a look at free cash flow indicates it actually burnt through HK$32m in the last year. It's worth noting that IWS Group Holdings generated positive FCF of HK$45m a year ago, so at least they've done it in the past. One positive for IWS Group Holdings shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. As a result, some shareholders may be looking for stronger cash conversion in the current year. 
2024年3月期において、IWSグループホールディングは0.39の勘定アクル率を持っていました。一般的なルールとして、それは将来の収益性にとって不利な兆候です。つまり、会社はその期間に自由キャッシュフローを一切生み出していませんでした。利益をHK$13,700万報告したにもかかわらず、フリーキャッシュフローを見ると、同社は実際には過去1年間でHK$3,200万を消費しました。IWSグループホールディングは1年前にHK$4,500万のプラスのフリーキャッシュフローを生み出していることがわかっているため、少なくとも過去にそれを実現していると言えます。IWSグループホールディング株主の1つのポジティブな要因は、昨年の勘定アクル率がかなり改善されていたことであり、将来的により強力なキャッシュフローに戻る可能性があることを示しています。その結果、現在の年においてより強力なキャッシュフローに期待している株主もいるでしょう。