Junjin Construction and RobotLtd's (KRX:079900) Profits May Not Reveal Underlying Issues

The market shrugged off Junjin Construction and Robot Co.,Ltd.'s (KRX:079900) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

Our free stock report includes 3 warning signs investors should be aware of before investing in Junjin Construction and RobotLtd. Read for free now.

A Closer Look At Junjin Construction and RobotLtd'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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.

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".

Junjin Construction and RobotLtd has an accrual ratio of 0.20 for the year to March 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. To wit, it produced free cash flow of ₩12b during the period, falling well short of its reported profit of ₩31.1b. Junjin Construction and RobotLtd shareholders will no doubt be hoping that its free cash flow bounces back next year, since it was down over the last twelve months.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Junjin Construction and RobotLtd's Profit Performance

Junjin Construction and RobotLtd didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Junjin Construction and RobotLtd's statutory profits are better than its underlying earnings power. And we are pleased to note that EPS is at least heading in the right direction in the alst twelve months. 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 Junjin Construction and RobotLtd at this point in time. Case in point: We've spotted 3 warning signs for Junjin Construction and RobotLtd you should be mindful of and 1 of these doesn't sit too well with us.

This note has only looked at a single factor that sheds light on the nature of Junjin Construction and RobotLtd'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 with high insider ownership.

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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.