Despite strong earnings, the market for Jeena Sikho Lifecare Limited’s (NSE:JSLL) The stock hasn’t moved much. Our analysis suggests that this could be because shareholders have noticed some underlying factors of concern.
Check out our latest analysis for Jeena Sikho Lifecare
Review of Cash Flow vs. Revenue of Jeena Sikho Lifecare
In high finance, the key ratio used to measure a company’s ability to convert reported earnings to free cash flow (FCF) is the exercise ratio (cash). Put simply, 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 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.
For the year to March 2022, Jeena Sikho Lifecare had an exercise ratio of 0.49. Typically, this bodes ill for future profitability. Namely, the company did not generate a single penny of free cash flow during this period. In the past twelve months, he had actually negative free cash flow, with an outflow of ₹57m despite its earnings of ₹112.3m, mentioned above. It should be noted that Jeena Sikho Lifecare generated a positive FCF of ₹87 million a year ago, so at least they have done so in the past.
To note: we always recommend that investors check the strength of the balance sheet. Click here to access our review of Jeena Sikho Lifecare’s balance sheet.
Our View on Jeena Sikho Lifecare Earnings Performance
As we have made very clear, we are a bit concerned that Jeena Sikho Lifecare did not support last year’s earnings with free cash flow. For this reason, we believe that Jeena Sikho Lifecare’s statutory earnings may be a poor indicator of its underlying earnings capacity and could give investors an overly positive impression of the company. But the good news is that its EPS growth over the past three years has been very impressive. Ultimately, it is essential to consider more than the above factors, if you want to fully understand the business. If you want to learn more about Jeena Sikho Lifecare as a business, it is important to be aware of the risks it faces. Our analysis shows 2 warning signs for Jeena Sikho Lifecare (1 cannot be ignored!) and we strongly recommend that you consult them before investing.
Today, we zoomed in on a single data point to better understand the nature of Jeena Sikho Lifecare’s benefits. But there are many other ways to inform your opinion about a company. 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.