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We Think Clas Ohlson's (STO:CLAS B) Profit Is Only A Baseline For What They Can Achieve

Simply Wall St · 06/20 04:22

When companies post strong earnings, the stock generally performs well, just like Clas Ohlson AB (publ)'s (STO:CLAS B) stock has recently. Our analysis found some more factors that we think are good for shareholders.

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earnings-and-revenue-history
OM:CLAS B Earnings and Revenue History June 20th 2025

A Closer Look At Clas Ohlson's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual 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 time. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Over the twelve months to April 2025, Clas Ohlson recorded an accrual ratio of -0.52. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of kr1.7b during the period, dwarfing its reported profit of kr882.2m. Clas Ohlson's free cash flow improved over the last year, which is generally good to see.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Clas Ohlson's Profit Performance

Happily for shareholders, Clas Ohlson produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Clas Ohlson's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 69% per year over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Clas Ohlson at this point in time. In terms of investment risks, we've identified 1 warning sign with Clas Ohlson, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Clas Ohlson's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.