We think there are more problems for the Canadian General Medical Center complex (TADAWUL:9518) than just sluggish income
Canadian General Medical Center Complex Society (TADAWUL:9518) The stock has not been much affected by its recent lackluster results. We performed an analysis and found some concerning details under the statutory benefit number.
See our latest review for Canadian General Medical Center Complex
Review of cash flow versus earnings of the Canadian General Medical Center Complex
Many investors have not heard of the cash flow equalization ratio, but it’s actually a useful measure of how well a company’s earnings are supported by free cash flow (FCF) over a given period. The strike ratio subtracts the FCF from the profit for a given period and divides the result by the average operating assets of the company over that period. You can think of the cash flow equalization ratio as the “non-FCF profit ratio”.
Therefore, a negative accrual ratio is positive for the company and a positive accrual ratio is negative. 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. Indeed, some academic studies have suggested that high accrual ratios tend to lead to lower earnings or less earnings growth.
The Canadian General Medical Center Complex has an accrual ratio of 0.58 for the year to December 2021. Statistically speaking, this is really negative for future revenue. And indeed, during the period, the company produced no free cash flow. In the last year he had actually negative free cash flow of ر45,000 as opposed to the aforementioned profit of £14.1 million. We saw FCF was £17m a year ago, so the Canadian General Medical Center Complex has at least been able to generate positive FCF in the past. That said, there is more to the story. It can be seen that unusual elements have impacted its statutory profit, and therefore the growth ratio. A positive for Canadian General Medical Center Complex shareholders is that its accrual ratio was significantly better last year, giving reason to believe it could revert to stronger cash conversion in the future. Shareholders should look for an improvement in cash flow over current year earnings, if that is indeed the case.
To note: we always recommend that investors check the strength of the balance sheet. Click here to access our analysis of the balance sheet of the Canadian General Medical Center Complex.
How do unusual items affect profits?
The fact that the company had unusual items boosting its profits by £2.1million over the past year is likely part of the reason why its accrual rate was so low. While we like to see increases in earnings, we tend to be a little more cautious when unusual items have made a big contribution. We have analyzed the figures of most publicly traded companies around the world, and it is very common for unusual items to be unique in nature. And, after all, that’s exactly what accounting terminology implies. If the Canadian General Medical Center Complex does not see this contribution repeated, all things being equal, we expect its earnings to decline in the current year.
Our perspective on the performance of the benefits of the Canadian General Medical Center Complex
In summary, the Canadian General Medical Center Complex got a nice boost to profit from unusual items, but couldn’t match its paper earnings with free cash flow. For the reasons mentioned above, we believe that a superficial look at the statutory benefits of the Canadian General Medical Center Complex might make it look better than it actually is on an underlying level. So, if you want to dig deeper into this stock, it is crucial to consider the risks it faces. For example, we found that the Canadian General Medical Center Complex has 4 warning signs (2 are potentially serious!) which deserve your attention before going further in your analysis.
Our Canadian General Medical Center Complex review has focused on some factors that can make its benefits seem better than they are. And, based on that, we’re somewhat skeptical. 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.