We Like R&D ComputerLtd's (TSE:3924) Earnings For More Than Just Statutory Profit

Despite posting healthy earnings, R&D Computer Co.,Ltd.'s (TSE:3924 ) stock has been quite weak. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Zooming In On R&D ComputerLtd's 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.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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.

R&D ComputerLtd has an accrual ratio of -0.11 for the year to September 2025. Therefore, its statutory earnings were quite a lot less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of JP¥1.3b, well over the JP¥1.11b it reported in profit. R&D ComputerLtd's free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of R&D ComputerLtd.

Our Take On R&D ComputerLtd's Profit Performance

As we discussed above, R&D ComputerLtd has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that R&D ComputerLtd's statutory profit actually understates its earnings potential! And the EPS is up 58% annually, 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. You can see our latest analysis on R&D ComputerLtd's balance sheet health here.

Today we've zoomed in on a single data point to better understand the nature of R&D ComputerLtd'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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.