We Think KOMEDA Holdings' (TSE:3543) Healthy Earnings Might Be Conservative

KOMEDA Holdings Co., Ltd.'s (TSE:3543) solid earnings announcement recently didn't do much to the stock price. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

View our latest analysis for KOMEDA Holdings

Zooming In On KOMEDA Holdings' 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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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 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.

KOMEDA Holdings has an accrual ratio of -0.10 for the year to February 2024. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. Indeed, in the last twelve months it reported free cash flow of JP¥10b, well over the JP¥5.97b it reported in profit. KOMEDA Holdings shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 KOMEDA Holdings' Profit Performance

As we discussed above, KOMEDA Holdings has perfectly satisfactory free cash flow relative to profit. Because of this, we think KOMEDA Holdings' earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 67% per year over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into KOMEDA Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for KOMEDA Holdings you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of KOMEDA Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.