Geske bought EUR100,000 in Borussia Dortmund shares on Aug 26

Geske bought EUR100,000 in Borussia Dortmund shares on Aug 26

Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien (ETR:BVB) recently reported weak earnings, but the stock's reaction was relatively muted. A deeper dive into the company's financials reveals several underlying weaknesses that investors should be aware of.

One key metric that often goes overlooked is the accrual ratio from cash flow. This ratio, calculated by subtracting free cash flow (FCF) from profit and dividing that by the average operating assets, provides insight into how well a company's profit is backed by free cash flow. For Borussia Dortmund, the accrual ratio for the year ending June 2025 was 0.27, indicating that its free cash flow fell short of covering its statutory profit [1].

Over the past year, Borussia Dortmund reported negative free cash flow of €88 million, compared to a profit of €6.50 million. This discrepancy suggests that the company is burning through cash at a significant rate, which could indicate high risk for investors. Analysts have forecasted future profitability, but the company's true underlying earnings power may be less than its statutory profit, as indicated by the accrual ratio [1].

Investors should also consider other factors when evaluating Borussia Dortmund's earnings quality. For instance, a high return on equity might indicate a quality business, but it's essential to consider the broader picture, including margins, forecast growth, and return on investment. Additionally, the company faces several warning signs that could impact its future performance [1].

Geske's purchase of EUR100,000 in Borussia Dortmund shares on Aug 26 should be evaluated within the context of these financial indicators. While the company's stock did not experience a significant movement following the earnings report, the underlying financial health suggests that investors should proceed with caution.

References:
[1] https://finance.yahoo.com/news/borussia-dortmund-gmbh-kommanditgesellschaft-auf-065819350.html