Ambuja Cements Limited’s (NSE:AMBUJACEM) recent earnings report failed to impress the market, despite robust numbers. A closer analysis of the company’s financials reveals some concerning signs. The accrual ratio from cash flow, which measures the difference between a company’s profit and free cash flow, is a useful metric to evaluate a company’s performance. Ambuja Cements’ accrual ratio of 0.23 over the past 12 months indicates that its free cash flow fell significantly short of its reported profits. In fact, the company had a negative free cash flow of ₹64b, despite reporting a profit of ₹41.7b.
This disparity between profit and free cash flow may be a cause for concern, as it suggests that Ambuja Cements’ true underlying earnings power may be lower than its statutory profit. While the company has generated positive free cash flow in the past, its current performance is suboptimal. Analysts’ forecasts for future profitability are available, but it’s essential to consider the risks facing the company.
The article highlights two warning signs for Ambuja Cements, one of which is concerning. It’s crucial for investors to be aware of these risks and consider them in their investment decisions. The company’s 35% per annum growth in EPS over the last three years is a positive sign, but it’s essential to look beyond statutory earnings and consider other factors, such as return on equity and insider holdings.
The article concludes that while Ambuja Cements’ profit performance is a positive sign, it’s essential to consider the company’s cash flow and other factors to get a comprehensive view of its financial health. Investors should be cautious and consider multiple perspectives before making investment decisions. The article provides a neutral and unbiased view of the company’s performance, highlighting both positive and negative aspects, and encourages investors to do their own research and consider multiple factors before investing.