Capital Clean Energy Carriers Corp.'s (NASDAQ:CCEC) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Capital Clean Energy Carriers

A Closer Look At Capital Clean Energy Carriers' Earnings

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. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Capital Clean Energy Carriers has an accrual ratio of 0.38 for the year to December 2024. As a general rule, that bodes poorly for future profitability. And indeed, during the period the company didn't produce any free cash flow whatsoever. Over the last year it actually had negative free cash flow of US$961m, in contrast to the aforementioned profit of US$6.87m. We also note that Capital Clean Energy Carriers' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of US$961m. Notably, the company has issued new shares, thus diluting existing shareholders and reducing their share of future earnings.

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, Capital Clean Energy Carriers issued 6.1% 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. Check out Capital Clean Energy Carriers' historical EPS growth by clicking on this link.

How Is Dilution Impacting Capital Clean Energy Carriers' Earnings Per Share (EPS)?

Unfortunately, Capital Clean Energy Carriers' profit is down 93% per year over three years. Even looking at the last year, profit was still down 85%. Sadly, earnings per share fell further, down a full 94% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Capital Clean Energy Carriers' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On Capital Clean Energy Carriers' Profit Performance

As it turns out, Capital Clean Energy Carriers couldn't match its profit with cashflow and its dilution means that shareholders own less of the company than the did before (unless they bought more shares). Considering all this we'd argue Capital Clean Energy Carriers' profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Capital Clean Energy Carriers, you'd also look into what risks it is currently facing. For instance, we've identified 4 warning signs for Capital Clean Energy Carriers (3 are significant) you should be familiar with.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.