Team Internet Group plc (LON:TIG)’s earnings release last week was a disappointment for investors, despite the profit figures being decent. We’ve looked into it and we think they may actually be unnecessarily pessimistic.
Check out our latest analysis for Team Internet Group
Consideration of cash flow against revenue of Team Internet Group
In high finance, the key ratio used to measure how well a company is converting reported profits into free cash flow (FCF) is Incidence (From cash flows). The accrual ratio subtracts FCF from profits for a particular period and divides the result by the company’s average operating assets for that period. You can think of the accrual ratio from cash flows as the “non-FCF profitability ratio.”
So, if a company has a negative accruals ratio, it is actually considered a good thing, but if the accruals ratio is positive, it is considered a bad thing. While it’s ok to have a positive accruals ratio, indicating a certain level of non-cash profits, a high accruals ratio is a bad thing because it indicates that paper profits are not aligned with cash flows. This is because some academic research suggests that high accruals ratios tend to lead to lower profits or slower profit growth.
For the year to June 2024, Team Internet Group’s accrual ratio was -0.16. Therefore, its statutory profits are significantly below its free cash flow. In fact, last year’s free cash flow was US$64m, well above statutory profits of US$24.7m. Team Internet Group’s free cash flow has been stable over the last year.
You might be wondering what analysts are forecasting in terms of future profitability, and luckily, you can click here to see an interactive graph depicting future profitability based on analyst forecasts.
Our take on Team Internet Group’s profit performance
As mentioned above, Team Internet Group’s accrual ratios suggest strong conversion of profits to free cash flow, which is a positive for the company. Because of this, we think Team Internet Group’s underlying earnings power is similar to, or even greater than, what the statutory profits suggest. Furthermore, the company’s earnings per share have shown a very impressive growth rate over the past year. The purpose of this article is to assess how reliable the statutory profits are to reflect the company’s potential, but there is still much to take into account. With this in mind, we wouldn’t consider investing in the stock unless we fully understand the risks. Interestingly, we found the following: 2 warning signs for Team Internet Group I’d like to know about these.
In this note, we’ve looked at just one factor that sheds light on the nature of Team Internet Group’s profits. But there are plenty of other ways to form an opinion of a company. Some consider a high return on equity to be a good sign of a quality business, which is why we recommend taking a look at this report. free A collection of companies boasting high return on equity, or a list of stocks with high percent of insider ownership.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
