Even though you are earning strong income, the market is for Solar Innovation SA (WSE: SIN) shares did not move much. We dug around a bit and found some exciting factors in the details.
Check out our latest analysis for solar innovation
Study Cash Flows Depending on Income Solar Innovation
Many investors have not heard of it accrual ratio from cash flow, but it is actually a useful measure of how well a company’s profits are backed by free cash flow (FCF) over a given period. In plain English, this ratio subtracts the FCF from net income and divides that figure by the company’s average operating assets for the period. The ratio shows us how much a company’s profits exceed its FCF.
So, it is actually considered a good thing if the company has a negative accrual ratio, but bad if its accrual ratio is positive. Although the accrual ratio above zero is not a concern, we believe it should be noted if the company has a relatively high accrual ratio. This is because some research shows that high accrual ratios tend to lead to lower profits or lower profit growth.
For the year to December 2021, the accrual ratio of Solar Innovation was -0.57. Thus, his statutory income was much less than his free cash flow. In fact, last year he had a free cash flow of 38 million zlotys, which is much more than his statutory income of 20.8 million zlotys. Solar Innovation’s free cash flow has improved over the last year, which is generally nice to see. Having said that, there is something else in history. The accrual ratio reflects the impact of unusual items on statutory income, at least in part.
note: we always recommend investors to check the strength of the balance sheet. Click here to proceed to Solar Innovation Balance Analysis.
The impact of unusual items on profits
While the accrual ratio may portend good, we also note that Solar Innovation’s profits have been increased by unusual goods worth PLN 21 million over the last twelve months. While we like to see an increase in profits, we tend to be more cautious when unusual items have contributed greatly. When we analyzed the numbers of thousands of public companies, we found that unusual goods in a given year often increase no repeated next year. And this, as expected, given that these increases are described as “unusual”. We see that the positive unusual articles of Solar Innovation were quite significant compared to the profit for the year to December 2021. As a result, we can assume that unusual elements bring statutory profit much more than it would otherwise.
Our view on the results of Solar Innovation profits
In conclusion, the accrual ratio of Solar Innovation indicates a good quality of revenue established by law, but, on the other hand, profits have increased unusual items. Based on these factors, it is difficult to say whether Solar Innovation’s profits are a reasonable reflection of its core profitability. Thus, while profit quality is important, it is equally important to consider the risks facing Solar Innovation at the moment. Every company has risks, and we’ve noticed that 4 warning signs for solar innovation (of which 1 we are not very good!) you should know.
Our Solar Innovation study focused on certain factors that can make its revenue better than it is. But there is always something to learn if you are able to focus your mind on the little things. Some people consider high return on equity a good sign of quality business. While it may take a little research on your behalf, you can find it for free a collection of companies that boast high returns 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 comments based on historical data and analysts ’forecasts, using only unbiased methodology, and our articles are not intended as financial advice. This is not a recommendation to buy or sell any stocks, and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company ads or quality materials. Simply Wall St has no position in any of the listed stocks.