Shareholders Will Be Pleased With The Quality of SNT Holdings' (KRX:036530) Earnings

Even though SNT Holdings Co., Ltd.'s (KRX:036530) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for SNT Holdings

Examining Cashflow Against SNT Holdings' 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'.

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

SNT Holdings has an accrual ratio of -0.11 for the year to March 2024. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of ₩204b in the last year, which was a lot more than its statutory profit of ₩86.6b. SNT Holdings shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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

Our Take On SNT Holdings' Profit Performance

SNT Holdings' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think SNT Holdings' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 31% annually, 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that SNT Holdings has 1 warning sign and it would be unwise to ignore it.

Today we've zoomed in on a single data point to better understand the nature of SNT Holdings' 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.

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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.