There were no surprises in Acer Gadget Inc.’s (TWSE:2432) recent earnings report, and the stock price was unchanged over the past week. We did some analysis to find out why, and we think investors may be missing some encouraging factors in the earnings.
Check out our latest analysis for Acer Gadget.
TWSE:2432 Earnings and Revenue History November 12, 2024
Zoom in on Acer Gadget’s earnings
Many investors have never heard of the cash flow accrual ratio, but it’s actually a useful measure of how well a company’s earnings are supported by free cash flow (FCF) over a given period of time. . Simply put, this ratio subtracts FCF from net income and divides that number by the company’s average operating assets for the period. This ratio shows how much a company’s profit exceeds its FCF.
So if a company has a negative accrual ratio, it’s actually a good thing, and if the accrual ratio is positive, it’s a bad thing. This does not suggest that you need to worry about positive accrual rates, but it is worth noting if the accrual rate is fairly high. In particular, there is some academic evidence to suggest that, generally speaking, high accrual rates bode poorly for short-term profits.
For the trailing twelve months ending September 2024, Acer Gadget recorded an accrual ratio of -0.43. This indicates that free cash flow significantly exceeded statutory profit. In fact, over the last twelve months, the company reported free cash flow of NT$233m, significantly higher than the NT$129.3m it reported as profit. Acer Gadget shareholders will no doubt be pleased with the improvement in free cash flow over the last twelve months.
Note: Investors are always advised to check the strength of the balance sheet. Click here to see Acer Gadget’s balance sheet analysis.
Our take on Acer Gadget’s earnings performance
As explained above, Acer Gadget’s accrual ratio indicates that it is converting profits into free cash flow significantly, which is positive for the company. Therefore, we believe Acer Gadget’s potential earnings are equal to or higher than its statutory profit. Of course, we’ve only just scratched the surface when it comes to analyzing earnings. You can also consider margins, growth expectations, return on investment, among other factors. With this in mind, you should not consider investing in stocks unless you fully understand the risks. Every company has risks, and we’ve spotted 1 warning sign for Acer Gadget you should be aware of.
Today we’ve focused on a single data point to better understand the nature of Acer Gadget’s profits. But there are many other ways to convey your opinion about a company. For example, many people consider a high return on equity to be a sign of good economic conditions, while others like to ‘follow the money’ and look for stocks that insiders are buying. So you might wish to see this free collection of companies with high return on equity, or this list of stocks with high insider ownership.
New feature: Manage all your stock portfolios in one place
We’ve created the ultimate portfolio companion for stock investors. This is free.
• Connect an unlimited number of portfolios and see the total in one currency
• Alert you to new warning signs and risks via email or mobile phone
• Track the fair value of stocks
Try our demo portfolio for free
Do you have feedback on this article? Interested in its content? Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
