Shareholders Can Be Confident That Regina Miracle International (Holdings)'s (HKG:2199) Earnings Are High Quality

Regina Miracle International (Holdings) Limited (HKG:2199) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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A Closer Look At Regina Miracle International (Holdings)'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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Regina Miracle International (Holdings) has an accrual ratio of -0.12 for the year to September 2025. That indicates that its free cash flow was a fair bit more than its statutory profit. To wit, it produced free cash flow of HK$1.1b during the period, dwarfing its reported profit of HK$261.1m. Regina Miracle International (Holdings)'s free cash flow improved over the last year, which is generally good to see. However, that's not all there is to consider. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part.

See our latest analysis for Regina Miracle International (Holdings)

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.

The Impact Of Unusual Items On Profit

Regina Miracle International (Holdings)'s profit was reduced by unusual items worth HK$174m in the last twelve months, and this helped it produce high cash conversion, as reflected by its unusual items. This is what you'd expect to see where a company has a non-cash charge reducing paper profits. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Regina Miracle International (Holdings) to produce a higher profit next year, all else being equal.

Our Take On Regina Miracle International (Holdings)'s Profit Performance

In conclusion, both Regina Miracle International (Holdings)'s accrual ratio and its unusual items suggest that its statutory earnings are probably reasonably conservative. Looking at all these factors, we'd say that Regina Miracle International (Holdings)'s underlying earnings power is at least as good as the statutory numbers would make it seem. If you'd like to know more about Regina Miracle International (Holdings) as a business, it's important to be aware of any risks it's facing. When we did our research, we found 3 warning signs for Regina Miracle International (Holdings) (1 is a bit unpleasant!) that we believe deserve your full attention.

After our examination into the nature of Regina Miracle International (Holdings)'s profit, we've come away optimistic for the company. 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.