Kurashiru's (TSE:299A) Earnings Seem To Be Promising

The market seemed underwhelmed by last week's earnings announcement from Kurashiru, Inc. (TSE:299A) 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 Kurashiru's 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. 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.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Kurashiru has an accrual ratio of -0.21 for the year to September 2025. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of JP¥2.4b during the period, dwarfing its reported profit of JP¥1.99b. Kurashiru's 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 Kurashiru's Profit Performance

Happily for shareholders, Kurashiru produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Kurashiru's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 25% 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 Kurashiru at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Kurashiru.

This note has only looked at a single factor that sheds light on the nature of Kurashiru's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.