Investors were disappointed by Stadler Rail AG’s (VTX:SRAIL ) latest earnings release. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.
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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company’s average operating assets over that period. This ratio tells us how much of a company’s profit is not backed by free cashflow.
As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While having an accrual ratio above zero is of little concern, we do think it’s worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
Over the twelve months to June 2025, Stadler Rail recorded an accrual ratio of 0.22. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of CHF31.5m, a look at free cash flow indicates it actually burnt through CHF192m in the last year. We saw that FCF was CHF76m a year ago though, so Stadler Rail has at least been able to generate positive FCF in the past.
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.
Stadler Rail’s accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Because of this, we think that it may be that Stadler Rail’s statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. Of course, we’ve only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. For example, Stadler Rail has 3 warning signs (and 2 which are a bit concerning) we think you should know about.
Read More: Stadler Rail’s (VTX:SRAIL) Weak Earnings May Only Reveal A Part Of The
