Statutory Profit Doesn't Reflect How Good transcosmos' (TSE:9715) Earnings Are

When companies post strong earnings, the stock generally performs well, just like transcosmos inc.'s (TSE:9715) stock has recently. Our analysis found some more factors that we think are good for shareholders.

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Examining Cashflow Against transcosmos' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. 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.

For the year to September 2025, transcosmos had an accrual ratio of -0.11. That indicates that its free cash flow was a fair bit more than its statutory profit. To wit, it produced free cash flow of JP¥22b during the period, dwarfing its reported profit of JP¥13.7b. transcosmos' free cash flow improved over the last year, which is generally good to see.

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.

Our Take On transcosmos' Profit Performance

As we discussed above, transcosmos has perfectly satisfactory free cash flow relative to profit. Because of this, we think transcosmos' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 39% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing transcosmos at this point in time. At Simply Wall St, we found 1 warning sign for transcosmos and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of transcosmos' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.