We believe that the benefit of IFB Industries (NSE: IFBIND) is only a benchmark for what they can achieve

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Although IFB Industries Limited (NSE: IFBIND) The recent earnings release was solid, the market didn’t seem to notice. Our analysis suggests that investors may be missing out on some promising details.

Check out our latest analysis for IFB Industries

NSEI: IFBIND Revenue and Revenue History June 22, 2021

Focus on IFB Industries revenues

Many investors have not heard of the cash flow adjustment ratio, but it is actually a useful measure of the extent to which a company’s profit is supported by Free Cash Flow (FCF) during a given period. 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. 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.

IFB Industries has an accruals ratio of -0.23 for the fiscal year ended March 2021. Consequently, its statutory income is significantly lower than its free cash flow. In fact, he had free cash flow of 2.0 billion yen last year, which was far more than his statutory profit of 632.4 million yen. Given that IFB Industries had negative free cash flow in the previous corresponding period, the last twelve months profit of 2.0 billion yen appears to be a step in the right direction.

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

Our point of view on the profit performance of IFB Industries

Fortunately for shareholders, IFB Industries generated ample free cash flow to support its statutory profit figures. For this reason, we believe that the underlying profit potential of IFB Industries is as good, if not better, than the statutory profit suggests! And on top of that, its earnings per share have grown at an extremely impressive rate over the past year. Ultimately, it is essential to consider more than the above factors alone, 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. At Simply Wall St, we found 1 warning sign for IFB Industries and we think they deserve your attention.

This memo has considered only one factor that sheds light on the nature of IFB Industries’ profit. 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. 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 any of the stocks mentioned.
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