The market seemed underwhelmed by last week's earnings announcement from Jiangsu Lianyungang Port Co., Ltd. (SHSE:601008) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

Zooming In On Jiangsu Lianyungang Port's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. 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 2024, Jiangsu Lianyungang Port 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. Indeed, in the last twelve months it reported free cash flow of CN¥866m, well over the CN¥190.4m it reported in profit. Jiangsu Lianyungang Port's free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Lianyungang Port.

Our Take On Jiangsu Lianyungang Port's Profit Performance

As we discussed above, Jiangsu Lianyungang Port has perfectly satisfactory free cash flow relative to profit. Because of this, we think Jiangsu Lianyungang Port's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate 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. If you'd like to know more about Jiangsu Lianyungang Port as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Jiangsu Lianyungang Port, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Lianyungang Port's 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. 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.

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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.