We Think That There Are More Issues For Guyoung Technology (KOSDAQ:053270) Than Just Sluggish Earnings

Guyoung Technology Co., Ltd's (KOSDAQ:053270) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

Our free stock report includes 4 warning signs investors should be aware of before investing in Guyoung Technology. Read for free now.

Examining Cashflow Against Guyoung Technology's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to March 2025, Guyoung Technology had an accrual ratio of 0.42. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. Even though it reported a profit of ₩17.8b, a look at free cash flow indicates it actually burnt through ₩78b in the last year. We also note that Guyoung Technology's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₩78b.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guyoung Technology.

Our Take On Guyoung Technology's Profit Performance

As we discussed above, we think Guyoung Technology's earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that Guyoung Technology's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To that end, you should learn about the 4 warning signs we've spotted with Guyoung Technology (including 2 which shouldn't be ignored).

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