We Like The Quality Of Japan Cash Machine's (TSE:6418) Earnings

The market seemed underwhelmed by last week's earnings announcement from Japan Cash Machine Co., Ltd. (TSE:6418) 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 Japan Cash Machine'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. 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to March 2025, Japan Cash Machine had an accrual ratio of -0.13. 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¥7.2b, well over the JP¥3.81b it reported in profit. Given that Japan Cash Machine had negative free cash flow in the prior corresponding period, the trailing twelve month resul of JP¥7.2b would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Japan Cash Machine.

Our Take On Japan Cash Machine's Profit Performance

Japan Cash Machine's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Japan Cash Machine's earnings potential is at least as good as it seems, and maybe even better! Better yet, its EPS are growing strongly, which is nice to see. 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 Japan Cash Machine as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Japan Cash Machine you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Japan Cash Machine'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.