Explore First Solar’s Fair Values from the Community and select yours
First Solar, Inc.’s (NASDAQ:FSLR) robust recent earnings didn’t do much to move the stock. However the statutory profit number doesn’t tell the whole story, and we have found some factors which might be of concern to shareholders.
As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company’s free cash flow (FCF) matches its profit. 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. The ratio shows us how much a company’s profit exceeds its FCF.
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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
Over the twelve months to June 2025, First Solar recorded an accrual ratio of 0.30. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. In the last twelve months it actually had negative free cash flow, with an outflow of US$943m despite its profit of US$1.26b, mentioned above. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of US$943m, this year, indicates high risk.
Our data indicates that First Solar insiders have been buying shares! Luckily we are in a position to provide you with this free chart of of all insider buying (and selling).
First Solar’s accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Because of this, we think that it may be that First Solar’s statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. To that end, you should learn about the 2 warning signs we’ve spotted with First Solar (including 1 which doesn’t sit too well with us).
