Goodwill Entertainment Holding Limited’s (Catalist:GEH) recent earnings report didn’t offer any surprises, with the shares unchanged over the last week. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.
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. 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’.
As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While having an accrual ratio above zero is of little concern, we do think it’s worth noting when a company has a relatively high accrual ratio. 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 June 2025, Goodwill Entertainment Holding recorded an accrual ratio of -0.88. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of S$13m, well over the S$3.22m it reported in profit. Goodwill Entertainment Holding shareholders are no doubt pleased that free cash flow improved over the last twelve months.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Goodwill Entertainment Holding.
As we discussed above, Goodwill Entertainment Holding’s accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Goodwill Entertainment Holding’s underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it’s equally important to consider the risks facing Goodwill Entertainment Holding at this point in time. Every company has risks, and we’ve spotted 1 warning sign for Goodwill Entertainment Holding you should know about.
‘ The preceding article may include information circulated by third parties ’
‘ Some details of this article were extracted from the following source uk.finance.yahoo.com ’
