Müller – The purple logistics SE’s (ETR:MLL) The strong earnings report was rewarded with positive share price development. Our analysis revealed other factors that we believe are good for shareholders.

Check out our latest analysis of Müller – Die lila Logistik

The result of Müller – The purple logistics in focus

An important financial metric used to measure how well a company converts its profit into free cash flow (FCF) is the Delimitation ratio. Simply put, this metric subtracts FCF from net income and divides that number by the company’s average funds from operations during that period. This metric indicates how much of a company’s profit is not covered by free cash flow.

Therefore, it is actually considered good if a company has a negative accrual ratio, but bad if its accrual ratio is positive. This is not to say that we should be concerned about a positive accrual ratio, but it is worth noting if the accrual ratio is quite high. This is because some academic studies have pointed out that high accrual ratios tend to lead to lower profit or lower profit growth.

In the twelve months to June 2024, Müller – Die lila Logistik recorded an accrual ratio of -0.31. This means that free cash flow significantly exceeded statutory profit. In the last twelve months, the company recorded free cash flow of €32 million, significantly more than profit of €8.19 million. Given Müller – Die lila Logistik’s negative free cash flow in the corresponding period last year, the last twelve months result of €32 million seems to be a step in the right direction. However, that’s not all there is to consider. We see that unusual items have affected statutory profit and thus the accrual ratio.

Note: We generally recommend that investors check the strength of the balance sheet. Click here to access our balance sheet analysis of Müller – Die lila Logistik.

The impact of unusual items on profit

While the provision ratio could be a good sign, we also note that Müller – Die lila Logistik’s profit was boosted by €997k worth of unusual items over the last twelve months. We can’t deny that higher profits generally make us optimistic, but we would have preferred to see profits sustained. When we analyzed the vast majority of listed companies globally, we found that significant unusual items are often not repeated. And that’s to be expected, since these increases are labeled ‘unusual’. Therefore, assuming these unusual items do not recur in the current year, we would expect profits to be weaker next year (in the absence of business growth, then).

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Our view on the profit development of Müller – Die lila Logistik

In summary, Müller – Die lila Logistik’s accrual ratio suggests that statutory earnings are of good quality, but on the other hand, profits have been boosted by unusual items. Based on these factors, we believe Müller – Die lila Logistik’s earnings are a fairly conservative indicator of underlying profitability. Remember that when analyzing a stock, it is important to note the risks associated with it. To this end, you should learn about the 3 warning signs we have spotted the purple logistics at Müller (including 2 that should not be overlooked).

In this article, we’ve looked at a number of factors that can affect the usefulness of earnings numbers as a guide to a company. But there are many other ways to form an opinion about a company. For example, many people look to a high return on equity as an indication of a favorable business situation, while others like to “follow the money” and look for stocks that insiders are buying. You might want to check this out. free Collection of companies with high return on equity or this list of stocks with high insider ownership.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.