Strong earnings from Modiin Energy-Limited Partnership (TLV: MDIN.L) are not good news for shareholders


Although Modiin Limited Energy Partnership (TLV: MDIN.L) recently posted strong earnings, the stock has not reacted significantly. We decided to take a closer look and think investors might be concerned about several factors of concern that we found.

Check out our latest review for Modiin Energy-Limited Partnership

TASE: MDIN.L Revenue and Revenue History November 26, 2021

Review of cash flow versus earnings of Modiin Energy-Limited Partnership

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accumulation ratio (from cash). To get the accrual ratio, we first subtract FCF from earnings for a period and then divide that number by the average operating assets for the period. You can think of the accumulation ratio from cash flow as the “profit ratio excluding 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 profits suggest. While 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 accrual ratio is a bad sign for short-term profits, in general.

Modiin Energy-Limited Partnership has an accrual ratio of 0.90 for the year through September 2021. Generally, this bodes poorly for future profitability. Namely, the company did not generate any free cash flow during this period. Over the past year he had in fact negative free cash flow of US $ 17 million, in contrast to the aforementioned profit of US $ 3.53 million. We also note that Modiin Energy-Limited Partnership’s free cash flow was negative last year as well, so we could understand if shareholders were embarrassed by its $ 17 million outflow. Notably, the company issued new shares, thereby diluting existing shareholders and reducing their share of future earnings.

To note: we always recommend that investors check the strength of the balance sheet. Click here to access our analysis of Modiin Energy-Limited Partnership’s balance sheet.

In order to understand the potential for return per share, it is essential to consider the extent to which a company dilutes its shareholders. As it turns out, Modiin Energy-Limited Partnership issued 40% more new shares in the past year. As a result, each share now receives a smaller portion of the profits. Celebrating the bottom line while ignoring the dilution is like celebrating because you only have one slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Learn about Modiin Energy-Limited Partnership’s historic EPS growth by clicking on this link.

How does dilution affect Modiin Energy-Limited Partnership’s earnings per share? (EPS)

Modiin Energy-Limited Partnership was losing money three years ago. And even just focusing on the last twelve months, we don’t have a significant growth rate because it also suffered a loss a year ago. But math aside, it’s always good to see when a previously unprofitable business comes to fruition (although we accept that the profit would have been higher if dilution hadn’t been necessary). We can therefore see that the dilution had a fairly significant impact on the shareholders.

While Modiin Energy-Limited Partnership’s EPS can rise over time, it dramatically improves the chances of the stock price moving in the same direction. But on the other hand, we would be a lot less excited to hear that earnings (but not EPS) were improving. For this reason, one could argue that EPS is more important than long-term net profit, assuming the goal is to assess whether a company’s stock price might rise.

Our perspective on the earnings performance of Modiin Energy-Limited Partnership

In the end, Modiin Energy-Limited Partnership was unable to match its profits with its cash flow and its dilution means that shareholders own less of the company than before (unless they bought more of the company). ‘actions). Taking all this into account, we would say that Modiin Energy-Limited Partnership’s earnings probably give an overly generous impression of its sustainable level of profitability. So, if you want to dig deeper into this title, it is crucial to take into account the risks it faces. For example, we discovered that Modiin Energy-Limited Partnership has 4 warning signs (2 not to be overlooked!) That deserve your attention before going further in your analysis.

In this article, we’ve looked at a number of factors that can undermine the usefulness of profit numbers, and we’ve come out of it cautiously. But there is always more to be discovered if you are able to focus your mind on the smallest details. Some people consider a high return on equity to be a good sign of a quality business. Although 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 documents. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.


Comments are closed.