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The market for Betterware de México, S.A.P.I. de C.V.'s (NYSE:BWMX) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.
Zooming In On Betterware de MéxicoP.I. de'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. 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'.
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. 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 March 2025, Betterware de MéxicoP.I. de recorded an accrual ratio of -0.10. That indicates that its free cash flow was a fair bit more than its statutory profit. Indeed, in the last twelve months it reported free cash flow of Mex$1.2b, well over the Mex$568.0m it reported in profit. Betterware de MéxicoP.I. de did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie.
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.
Our Take On Betterware de MéxicoP.I. de's Profit Performance
As we discussed above, Betterware de MéxicoP.I. de has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Betterware de MéxicoP.I. de's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Betterware de MéxicoP.I. de has 3 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.