Shareholders Will Be Pleased With The Quality of Human Technologies' (TSE:5621) Earnings

Human Technologies, Inc. (TSE:5621) recently posted some strong earnings, and the market responded positively. Our analysis found some more factors that we think are good for shareholders.

Our free stock report includes 1 warning sign investors should be aware of before investing in Human Technologies. Read for free now.

A Closer Look At Human Technologies' Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to March 2025, Human Technologies recorded an accrual ratio of -0.25. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of JP¥788m during the period, dwarfing its reported profit of JP¥655.0m. Human Technologies 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 Human Technologies' Profit Performance

Happily for shareholders, Human Technologies produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Human Technologies' statutory profit actually understates its earnings potential! And the EPS is up 26% 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. If you'd like to know more about Human Technologies as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Human Technologies and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Human Technologies' 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. 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.