Shareholders Will Be Pleased With The Quality of Kothari Sugars and Chemicals' (NSE:KOTARISUG) Earnings
Kothari Sugars and Chemicals Limited's (NSE:KOTARISUG) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.
Zooming In On Kothari Sugars and Chemicals' Earnings
As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.
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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.
Over the twelve months to September 2026, Kothari Sugars and Chemicals recorded an accrual ratio of -0.24. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of ₹629m, well over the ₹136.9m it reported in profit. Notably, Kothari Sugars and Chemicals had negative free cash flow last year, so the ₹629m it produced this year was a welcome improvement. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.
See our latest analysis for Kothari Sugars and Chemicals
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kothari Sugars and Chemicals.
The Impact Of Unusual Items On Profit
Surprisingly, given Kothari Sugars and Chemicals' accrual ratio implied strong cash conversion, its paper profit was actually boosted by ₹343m in unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Kothari Sugars and Chemicals had a rather significant contribution from unusual items relative to its profit to September 2026. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Our Take On Kothari Sugars and Chemicals' Profit Performance
Kothari Sugars and Chemicals' profits got a boost from unusual items, which indicates they might not be sustained and yet its accrual ratio still indicated solid cash conversion, which is promising. Given the contrasting considerations, we don't have a strong view as to whether Kothari Sugars and Chemicals'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. Case in point: We've spotted 4 warning signs for Kothari Sugars and Chemicals you should be mindful of and 1 of these shouldn't be ignored.
Our examination of Kothari Sugars and Chemicals has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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