The moderate reaction of stock prices suggests that ANTA Sports Products Limited (HKG: 2020) strong earnings came as no surprise. Investors are probably missing some underlying factors that are encouraging for the future of the business.
See our latest review for ANTA sports products
ANTA Sports Products 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). Simply put, this ratio subtracts FCF from net income and divides that number 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, it is actually considered a good thing when a company has a negative accumulation ratio, but a bad thing if its accumulation ratio is positive. While having an accumulation ratio greater than zero is of little concern, we believe it is worth noting when a company has a relatively high accumulation ratio. Notably, some academic evidence suggests that a high accumulation ratio is a bad sign for short-term profits, in general.
For the year through June 2021, ANTA Sports Products had an accrual ratio of -0.19. This indicates that its free cash flow has greatly exceeded its statutory profit. Namely, it produced free cash flow of CNN 11 billion during the period, eclipsing its reported profit of CN’s 7.34 billion. ANTA Sports Products free cash flow has improved over the past year, which is generally good to see.
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 the profit performance of ANTA Sports products
Fortunately for shareholders, ANTA Sports Products generated a lot of free cash flow to support its statutory profit numbers. For this reason, we believe that the underlying profit potential of ANTA Sports Products is as good, if not better, than the statutory profit suggests! Better yet, its BPAs are growing strongly, which is nice to see. Of course, we’ve only scratched the surface when it comes to analyzing his income; one could also consider margins, growth forecasts and return on investment, among other factors. Keep in mind that when it comes to analyzing a stock, it is worth noting the risks involved. At Simply Wall St, we found 1 warning sign for ANTA sports products and we think they deserve your attention.
This memo has considered only one factor that sheds light on the nature of ANTA Sports Products’ profits. But there are plenty of other ways to tell your opinion about a business. Some people consider a high return on equity to be a good sign of a quality business. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.
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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 the mentioned stocks.
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