Despite posting some strong earnings, the market for Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien's (ETR:BVB) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien

Zooming In On Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to June 2024, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had an accrual ratio of 0.42. Statistically speaking, that's a real negative for future earnings. And indeed, during the period the company didn't produce any free cash flow whatsoever. In the last twelve months it actually had negative free cash flow, with an outflow of €93m despite its profit of €44.3m, mentioned above. We also note that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of €93m. 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.

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.

How Do Unusual Items Influence Profit?

Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's profit suffered from unusual items, which reduced profit by €10.0m in the last twelve months. If this was a non-cash charge, it would have made the accrual ratio better, if cashflow had stayed strong, so it's not great to see in combination with an uninspiring accrual ratio. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien to produce a higher profit next year, all else being equal.

Our Take On Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Profit Performance

In conclusion, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's accrual ratio suggests that its statutory earnings are not backed by cash flow, even though unusual items weighed on profit. Based on these factors, we think it's very unlikely that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's statutory profits make it seem much weaker than it is. If you'd like to know more about Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien as a business, it's important to be aware of any risks it's facing. For example - Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien has 2 warning signs we think you should be aware of.

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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.