Lygend Resources & Technology (HKG:2245)'s problems go beyond low profits.

The market then rebounded Lygend Resources & Technology Co., Ltd. (HKG:2245) shares are leading the charge following recent weak earnings reports. While shareholders may ignore the sweet profit numbers, we think they should also consider some other factors that may be cause for concern.

See the latest analysis of Lygend resources and technology.

Examining Lygend Resources & Technology's cash flow relative to its earnings.

In high finance, a key ratio used to measure how well a company converts its reported profits into free cash flow (FCF) is: Incidence (from cash flow). Simply put, this ratio subtracts his FCF from his net income and divides that number by the company's average operating assets for the period. This ratio shows how much a company's profits exceed its FCF.

As a result, a negative accrual rate is positive for the company and a positive accrual rate is negative. This does not suggest that you need to worry about positive accruals, but it is worth noting if the accruals are fairly high. To quote Lewellen and Restec's 2014 paper, “Firms with higher accruals tend to have lower future earnings.”

Lygend Resources & Technology's accrual ratio for the year to December 2023 is 0.30. Unfortunately, this means that free cash flow was significantly lower than statutory profit, which calls into question the usefulness of profit as a guide.Last year actually negative Free cash flow was CA$4.2 billion, compared to the aforementioned profit of CA$1.05 billion. We also note that Lygend Resources & Technology's free cash flow was actually negative last year as well, so it's understandable that shareholders are bothered by the company's C$4.2 billion outflow. .

Note: Investors are always advised to check the health of a company's balance sheet. Click here to see Lygend Resources & Technology's balance sheet analysis.

Our take on Lygend Resources & Technology's earnings performance

Lygend Resources & Technology failed to convert much of its profits into free cash flow last year, which some investors might consider to be rather suboptimal. So it appears that Lygend Resources & Technology's true underlying earnings power may actually be lower than its statutory profit. In more bad news, earnings per share fell last year. After all, if you want to understand a company properly, it is essential to consider more than just the above factors. So if you want to dig deeper into this stock, it's important to consider the risks facing this stock. To solve this, we discovered the following: 4 warning signs (1 is a little worrying!), here's what you need to know before buying Lygend Resources & Technology stock.

Today we've focused on a single data point, to get a deeper understanding of the nature of Lygend Resources & Technology's earnings. But there are many other ways to convey your opinion about a company. Some consider a high return on equity to be a good sign of a high-quality business.It may take a little research on your behalf, but you may find the following free A collection of companies with a high return on equity, or a list of stocks that insiders are buying to help.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.