Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's (EPA:ALCAF) Promising Earnings May Rest On Soft Foundations

Centrale d'Achat Française pour l'Outre-Mer Société Anonyme (EPA:ALCAF) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

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Zooming In On Centrale d'Achat Française pour l'Outre-Mer Société Anonyme'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. The ratio shows us how much a company's profit exceeds its FCF.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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 March 2025, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme recorded an accrual ratio of -0.13. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. To wit, it produced free cash flow of €35m during the period, dwarfing its reported profit of €14.8m. Centrale d'Achat Française pour l'Outre-Mer Société Anonyme did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie. Having said that, there is more to the story. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

See our latest analysis for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Centrale d'Achat Française pour l'Outre-Mer Société Anonyme.

The Impact Of Unusual Items On Profit

While the accrual ratio might bode well, we also note that Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's profit was boosted by unusual items worth €3.9m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Centrale d'Achat Française pour l'Outre-Mer Société Anonyme doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's Profit Performance

In conclusion, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's accrual ratio suggests its statutory earnings are of good quality, but on the other hand the profits were boosted by unusual items. Given the contrasting considerations, we don't have a strong view as to whether Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's profits are an apt reflection of its underlying potential for profit. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 3 warning signs for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme (1 doesn't sit too well with us!) and we strongly recommend you look at them before investing.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.