The statutory profit does not reflect the quality of the income of Bijou Brigitte modische Accessoires (ETR: BIJ)
Brigitte Modische Jewel Accessories Aktiengesellschaft’s (ETR: BIJ) The strong earnings report was rewarded with a positive share price move. We dug in and found other encouraging factors that investors will appreciate.
See our latest analysis for Bijou Brigitte modische Accessories
Focus on Bijou Brigitte Modische Accessories’ winnings
Many investors have not heard of the cash flow equalization 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. To get the strike ratio, we first subtract FCF from earnings for a period and then divide that number by the average operating assets for the period. The ratio shows us how much a company’s profit exceeds its FCF.
This means that a negative accrual ratio is a good thing because it shows that the company is generating more free cash flow than its earnings suggest. That’s not to say we should worry about a positive accumulation ratio, but it’s worth noting where the accumulation ratio is rather high. Notably, there is academic evidence that suggests a high exercise ratio is a bad sign for short-term profits, generally speaking.
Over the twelve months to December 2021, Bijou Brigitte modische Accessoires recorded an increase ratio of -0.70. This implies that it has very good cash conversion and that its earnings last year significantly underestimate its free cash flow. In fact, he had a free cash flow of 73 million euros last year, which was well above his statutory profit of 17.0 million euros. Bijou Brigitte modische Accessoires’ free cash flow has improved over the past year, which is generally good to see.
To note: we always recommend that investors check the strength of the balance sheet. Click here to be redirected to our analysis of the balance sheet of Bijou Brigitte modische Accessoires.
Our view on the earnings performance of Bijou Brigitte modische Accessoires
As mentioned above, Bijou Brigitte modische Accessories’ accrual rate indicates a strong conversion of earnings to free cash flow, which is positive for the business. Based on this observation, we consider it possible that the statutory profit of Bijou Brigitte modische Accessories actually underestimates its earning potential! And it’s also positive that the company has shown enough improvement to post a profit this year, after losing money last year. 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. If you want to dive deeper into Bijou Brigitte modische Accessoires, you should also look at the risks it currently faces. Every business has risks, and we’ve spotted 1 warning sign for Bijou Brigitte modische Accessoires you should know.
Today, we zoomed in on a single data point to better understand the nature of Bijou Brigitte modische Accessoires’ earnings. But there’s always more to discover if you’re able to focus on the details. Some people consider a high return on equity to be a good sign of a quality company. 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.