JINSUNG T.E.C's (KOSDAQ:036890) Soft Earnings Don't Show The Whole Picture

The market for JINSUNG T.E.C., Inc.'s (KOSDAQ:036890) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for JINSUNG T.E.C

Zooming In On JINSUNG T.E.C'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. This ratio tells us how much of a company's profit is not backed by free cashflow.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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".

JINSUNG T.E.C has an accrual ratio of -0.23 for the year to December 2023. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. In fact, it had free cash flow of ₩82b in the last year, which was a lot more than its statutory profit of ₩28.4b. JINSUNG T.E.C's free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of JINSUNG T.E.C.

Our Take On JINSUNG T.E.C's Profit Performance

Happily for shareholders, JINSUNG T.E.C produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that JINSUNG T.E.C's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. If you'd like to know more about JINSUNG T.E.C as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for JINSUNG T.E.C and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of JINSUNG T.E.C'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.