Samil Enterprise's (KOSDAQ:002290) Earnings May Just Be The Starting Point

The subdued stock price reaction suggests that Samil Enterprise Co., Ltd.'s (KOSDAQ:002290) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

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Examining Cashflow Against Samil Enterprise'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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2025, Samil Enterprise recorded an accrual ratio of -0.42. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of ₩17b during the period, dwarfing its reported profit of ₩8.01b. Given that Samil Enterprise had negative free cash flow in the prior corresponding period, the trailing twelve month resul of ₩17b 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 Samil Enterprise.

Our Take On Samil Enterprise's Profit Performance

As we discussed above, Samil Enterprise's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Samil Enterprise's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So while earnings quality is important, it's equally important to consider the risks facing Samil Enterprise at this point in time. Case in point: We've spotted 1 warning sign for Samil Enterprise you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Samil Enterprise's 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. 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.