We Think QB Net HoldingsLtd's (TSE:6571) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from QB Net Holdings Co.,Ltd. (TSE:6571) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

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Examining Cashflow Against QB Net HoldingsLtd's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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.

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 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.

Over the twelve months to September 2025, QB Net HoldingsLtd recorded an accrual ratio of -0.12. 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¥3.2b during the period, dwarfing its reported profit of JP¥1.06b. QB Net HoldingsLtd's free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons.

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 QB Net HoldingsLtd's Profit Performance

As we discussed above, QB Net HoldingsLtd has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that QB Net HoldingsLtd's statutory profit actually understates its earnings potential! And it's also good to see that its earnings per share have improved a bit over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that QB Net HoldingsLtd has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of QB Net HoldingsLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.