We believe there are some factors of concern that you should be aware of in Vinati Organics’ revenue (NSE: VINATIORGA)

Vinati Organics Limited (NSE: VINATIORGA) Recent robust earnings haven’t done much to shake the stock. We believe shareholders have noticed some factors of concern beyond the statutory profit figures.

See our latest review for Vinati Organics

NSEI: VINATIORGA Revenue and Revenue History November 18, 2021

A closer look at the benefits of Vinati Organics

Many investors have not heard of the cash flow adjustment ratio, but it’s actually a useful measure of the extent to which a company’s profit is supported by Free Cash Flow (FCF) over a given period. The accrual ratio subtracts the FCF from the profit for a given period and divides the profit by the average operating assets of the company over that period. The ratio shows us by 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 profits suggest. This is not to say that we should be worried about a positive accumulation ratio, but it should be noted where the accumulation ratio is rather high. This is because some academic studies have suggested that high accrual ratios tend to lead to lower profits or lower earnings growth.

In the twelve months to September 2021, Vinati Organics recorded a regularization ratio of 0.24. Unfortunately, this means that its free cash flow is significantly lower than its reported profits. In the past twelve months he had in fact negative free cash flow, with an outflow of 70 million despite its profit of 2.97 million, mentioned above. We saw that FCF was € 1.9 billion a year ago, so Vinati Organics has at least been able to generate positive FCF in the past.

To note: we always recommend that investors check the strength of the balance sheet. Click here to access our analysis of Vinati Organics’ balance sheet.

Our perspective on the earnings performance of Vinati Organics

Vinati Organics has not converted much of its earnings into free cash flow over the past year, which some investors may consider sub-optimal. Therefore, it seems possible to us that the true underlying profit power of Vinati Organics is in fact less than its statutory profit. But at least holders can take comfort in the 39% annual growth in EPS for the last three. Ultimately, it is essential to consider more than the above factors if you are to fully understand the business. In light of this, if you want to do more analysis on the business, it is essential to be aware of the risks involved. During our analysis, we found that Vinati Organics has 1 warning sign and it would be unwise to ignore it.

This memo has considered only one factor that sheds light on the nature of Vinati Organics’ profit. But there is always more to be discovered if you are able to focus your mind on the smallest details. For example, many people see a high return on equity as an indication of a favorable business economy, while others like to “follow the money” and look for stocks that insiders are buying. While 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 any of the stocks mentioned.

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