Supreme Industries (NSE: SUPREMEIND) posted healthy earnings, but there are other factors to be aware of

Despite strong earnings, the market for Supreme Industries Limited (NSE: SUPREMEIND) the stock hasn’t moved much. We did some research and found some factors of concern in the details.

Check out our latest review for Supreme Industries

NSEI: SUPREMEIND Revenue and Revenue History October 30, 2021

Supreme Industries Cash Flow vs. Profit Review

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accumulation rate (from cash). The accrual ratio subtracts FCF from earnings for a given period and divides the earnings by the company’s average operating assets over that period. The ratio shows us by how much a company’s profit exceeds its FCF.

Therefore, a negative accumulation ratio is positive for the company and a positive accumulation ratio is negative. While it is okay to have a positive accumulation ratio, indicating a certain level of non-cash profits, a high accumulation ratio is arguably a bad thing, as it indicates that paper profits do not match. to cash flow. To quote a 2014 article by Lewellen and Resutek, “Firms with higher stacks tend to be less profitable in the future.”

Supreme Industries has an accumulation ratio of 0.32 for the year through September 2021. Therefore, we know that its free cash flow was significantly lower than its statutory profit, which raises questions about utility. actual of that profit figure. Indeed, over the past twelve months, it has reported free cash flow of 3.3 billion yen, which is significantly lower than its profit of 11.6 billion yen. Supreme Industries free cash flow has actually declined over the past year, but it could rebound next year as free cash flow is often more volatile than accounting earnings. The good news for shareholders is that Supreme Industries’ accumulation ratio was much better last year, so this year’s misreading could simply be a case of a short-term mismatch between earnings and FCF. As a result, some shareholders may seek a higher cash conversion during the current year.

This might make you wonder what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our take on Supreme Industries’ profit performance

Supreme Industries’ accumulation ratio for the past twelve months means that the conversion to cash is far from ideal, which is negative when it comes to our view of its earnings. For this reason, we believe that Supreme Industries’ statutory profits may be better than its underlying profit power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the past three years. Of course, we’ve only scratched the surface when it comes to analyzing his income; one could also consider margins, forecast growth and return on investment, among other factors. In light of this, if you want to do more analysis on the business, it is essential to be aware of the risks involved. During our analysis, we found that Supreme Industries has 1 warning sign and it would be unwise to ignore it.

This memo has considered only one factor that sheds light on the nature of Supreme Industries’ earnings. But there are plenty of other ways to tell your opinion about a business. For example, many people see a high return on equity as an indication of a favorable business economy, while others like to “follow the money” and look for stocks that insiders are buying. While it may take a bit of research on your behalf, you can find this free set of companies offering a high return on equity, or that list of stocks that insiders buy to be useful.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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