Keen Ocean International Holding Limited (HKG:8070) reported strong earnings, but the stock stagnated. Our analysis suggests that shareholders have noticed something concerning in the numbers.
See our latest analysis for Keen Ocean International Holding
A Closer Look at Keen Ocean International Holding Earnings
In high finance, the key ratio used to measure a company’s ability to convert reported earnings to free cash flow (FCF) is the exercise ratio (cash). The strike 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 period. You can think of the cash flow equalization ratio as the “non-FCF profit ratio”.
Therefore, a negative accrual ratio is positive for the company and a positive accrual ratio is negative. While having a accrual ratio greater than zero is of little concern, we believe it is worth noting when a company has a relatively high accrual ratio. Indeed, some academic studies have suggested that high accrual ratios tend to lead to lower earnings or less earnings growth.
In the twelve months to December 2021, Keen Ocean International Holding recorded a accrual ratio of 0.23. We can therefore deduce that its free cash flow is much lower than the coverage of its statutory profit. In the past twelve months, he had actually negative free cash flow, with an outflow of HK$9.2 million despite its HK$12.2 million profit, mentioned above. We saw that FCF was HK$916,000 a year ago, so Keen Ocean International Holding has at least been able to generate positive FCF in the past.
To note: we always recommend that investors check the strength of the balance sheet. Click here to access our analysis of Keen Ocean International Holding’s balance sheet.
Our view on the earnings performance of Keen Ocean International Holding
Keen Ocean International Holding’s accrual ratio for the past 12 months means that the conversion to cash is less than ideal, which is negative in terms of our earnings view. For this reason, we believe Keen Ocean International Holding’s statutory earnings may be better than its underlying earnings capacity. The silver lining is that his BPA growth over the past year has been truly wonderful, even if not a perfect measure. The aim of this article has been to assess how much we can rely on statutory income to reflect business potential, but there is much more to consider. Keep in mind that when it comes to analyzing a stock, it is worth noting the risks involved. At Simply Wall St, we found 3 warning signs for Keen Ocean International Holding and we think they deserve your attention.
This note has looked at just one factor that sheds light on the nature of Keen Ocean International Holding’s earnings. But there’s always more to discover if you’re able to focus on the details. For example, many people view a high return on equity as an indication of a favorable trading economy, while others like to “follow the money” and look for stocks that insiders are buying. Although it might take a bit of research on your behalf, you might find this free collection of companies offering a high return on equity, or this list of stocks that insiders buy to be useful.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.