Despite posting some strong earnings, the market for Ypsomed Holding AG’s (VTX:YPSN) stock hasn’t moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.
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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. 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 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. To quote a 2014 paper by Lewellen and Resutek, “firms with higher accruals tend to be less profitable in the future”.
For the year to September 2025, Ypsomed Holding had an accrual ratio of 0.32. Therefore, we know that it’s free cashflow was significantly lower than its statutory profit, raising questions about how useful that profit figure really is. Over the last year it actually had negative free cash flow of CHF74m, in contrast to the aforementioned profit of CHF194.0m. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of CHF74m, this year, indicates high risk.
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.
Ypsomed Holding didn’t convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Ypsomed Holding’s statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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 Ypsomed Holding as a business, it’s important to be aware of any risks it’s facing. Our analysis shows 2 warning signs for Ypsomed Holding (1 is potentially serious!) and we strongly recommend you look at these before investing.