R&S Group Holding’s (VTX:RSGN) Promising Earnings May Rest On Soft Foundations

Last week’s profit announcement from R&S Group Holding AG (VTX:RSGN) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

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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. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. 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 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 June 2025, R&S Group Holding recorded an accrual ratio of 0.23. Therefore, we know that it’s free cashflow was significantly lower than its statutory profit, which is hardly a good thing. Indeed, in the last twelve months it reported free cash flow of CHF41m, which is significantly less than its profit of CHF57.9m. Notably R&S Group Holding’s free cash flow was stable over the last year. Notably, the company has issued new shares, thus diluting existing shareholders and reducing their share of future earnings. One positive for R&S Group Holding shareholders is that it’s accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

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.

To understand the value of a company’s earnings growth, it is imperative to consider any dilution of shareholders’ interests. As it happens, R&S Group Holding issued 33% more new shares over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company’s profits, while the net income level gives us a better view of the company’s absolute size. You can see a chart of R&S Group Holding’s EPS by clicking here.