IR Japan Holdings' (TSE:6035) Performance Is Even Better Than Its Earnings Suggest

Even though IR Japan Holdings, Ltd. (TSE:6035 ) posted strong earnings, investors appeared to be underwhelmed. We did some digging and actually think they are being unnecessarily pessimistic.

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Examining Cashflow Against IR Japan Holdings' Earnings

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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

IR Japan Holdings has an accrual ratio of -0.15 for the year to September 2025. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of JP¥981m in the last year, which was a lot more than its statutory profit of JP¥785.0m. IR Japan Holdings' free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of IR Japan Holdings.

Our Take On IR Japan Holdings' Profit Performance

As we discussed above, IR Japan Holdings has perfectly satisfactory free cash flow relative to profit. Because of this, we think IR Japan Holdings' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 40% over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for IR Japan Holdings (1 is significant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of IR Japan Holdings' profit. 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.