RoboTechnik Intelligent Technology Co., LTD's (SZSE:300757) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Examining Cashflow Against RoboTechnik Intelligent Technology's 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.

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. 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.

Over the twelve months to September 2024, RoboTechnik Intelligent Technology recorded an accrual ratio of 0.31. We can therefore deduce that its free cash flow fell well short of covering its statutory profit, suggesting we might want to think twice before putting a lot of weight on the latter. In the last twelve months it actually had negative free cash flow, with an outflow of CN¥386m despite its profit of CN¥115.9m, mentioned above. It's worth noting that RoboTechnik Intelligent Technology generated positive FCF of CN¥101m a year ago, so at least they've done it in the past. 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. One positive for RoboTechnik Intelligent Technology 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 RoboTechnik Intelligent Technology.

The Impact Of Unusual Items On Profit

RoboTechnik Intelligent Technology's profit suffered from unusual items, which reduced profit by CN¥23m in the last twelve months. In the case where this was a non-cash charge it would have made it easier to have high cash conversion, so it's surprising that the accrual ratio tells a different story. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect RoboTechnik Intelligent Technology to produce a higher profit next year, all else being equal.

Our Take On RoboTechnik Intelligent Technology's Profit Performance

RoboTechnik Intelligent Technology saw unusual items weigh on its profit, which should have made it easier to show high cash conversion, which it did not do, according to its accrual ratio. Having considered these factors, we don't think RoboTechnik Intelligent Technology's statutory profits give an overly harsh view of the business. If you'd like to know more about RoboTechnik Intelligent Technology as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 3 warning signs for RoboTechnik Intelligent Technology and we think they deserve your attention.

Our examination of RoboTechnik Intelligent Technology has focussed on certain factors that can make its earnings look better than they are. 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 with high insider ownership.

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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.