Shareholders Can Be Confident That Clas Ohlson's (STO:CLAS B) Earnings Are High Quality

Investors were underwhelmed by the solid earnings posted by Clas Ohlson AB (publ) (STO:CLAS B) recently. We have done some analysis and have found some comforting factors beneath the profit numbers.

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Zooming In On Clas Ohlson'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. 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. The ratio shows us how much a company's profit exceeds its FCF.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to October 2025, Clas Ohlson had an accrual ratio of -0.41. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of kr1.7b in the last year, which was a lot more than its statutory profit of kr1.02b. Clas Ohlson shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 Clas Ohlson's Profit Performance

As we discussed above, Clas Ohlson's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Clas Ohlson's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Better yet, its EPS are growing strongly, which is nice to see. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Clas Ohlson, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Clas Ohlson, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Clas Ohlson's profit. 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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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.