Medlive Technology Co., Ltd. (HKG:2192) saw its stock price decline by 5.16% on October 3rd, 2024, despite reporting strong earnings for the fiscal year ending June 2024. The Hong Kong-listed company's earnings per share growth has been impressive over the past three years, but concerns have emerged regarding the quality of its reported profits.
According to a financial analysis, Medlive Technology's accrual ratio for the year stood at 0.43, indicating that its free cash flow was significantly lower than its reported profits. The company's free cash flow of CN¥57 million in the last year was substantially less than its statutory profit of CN¥290.3 million.
While a high accrual ratio does not necessarily imply any wrongdoing, some academic studies have suggested that it can lead to lower future profitability or slower profit growth. Investors may be apprehensive about the quality of Medlive Technology's earnings, contributing to the stock's decline despite the seemingly strong financial performance.
