Nissan Tokyo Sales Holdings' (TSE:8291) Anemic Earnings Might Be Worse Than You Think

The subdued market reaction suggests that Nissan Tokyo Sales Holdings Co., Ltd.'s (TSE:8291) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

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Examining Cashflow Against Nissan Tokyo Sales 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. 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. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to September 2025, Nissan Tokyo Sales Holdings had an accrual ratio of 0.20. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, which is hardly a good thing. Over the last year it actually had negative free cash flow of JP¥6.5b, in contrast to the aforementioned profit of JP¥3.40b. We also note that Nissan Tokyo Sales Holdings' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of JP¥6.5b.

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

Our Take On Nissan Tokyo Sales Holdings' Profit Performance

Nissan Tokyo Sales Holdings didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Nissan Tokyo Sales Holdings' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 18% over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 3 warning signs for Nissan Tokyo Sales Holdings you should be mindful of and 1 of these shouldn't be ignored.

Today we've zoomed in on a single data point to better understand the nature of Nissan Tokyo Sales 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.