B&PLtd's (TSE:7804) Earnings Seem To Be Promising

The market seemed underwhelmed by the solid earnings posted by B&P Co.,Ltd. (TSE:7804) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Zooming In On B&PLtd's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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'.

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".

Over the twelve months to October 2025, B&PLtd recorded an accrual ratio of -0.34. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of JP¥647m in the last year, which was a lot more than its statutory profit of JP¥491.0m. As it happens we don't have the data on what B&PLtd produced by way of free cashflow, the year before, which is a pity.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of B&PLtd.

Our Take On B&PLtd's Profit Performance

Happily for shareholders, B&PLtd produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think B&PLtd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 15% annually, over the last three years. 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'd like to know more about B&PLtd as a business, it's important to be aware of any risks it's facing. For example - B&PLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of B&PLtd's profit. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.