Ecopro Materials' (KRX:450080) Shareholders May Want To Dig Deeper Than Statutory Profit

The market shrugged off Ecopro Materials Co., Ltd.'s (KRX:450080) solid earnings report. We think that investors might be worried about some concerning underlying factors.

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Zooming In On Ecopro Materials' Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to September 2025, Ecopro Materials had an accrual ratio of 0.31. We can therefore deduce that its free cash flow fell well short of covering its statutory profit, suggesting we might want to think twice before putting a lot of weight on the latter. In the last twelve months it actually had negative free cash flow, with an outflow of ₩307b despite its profit of ₩115.1b, mentioned above. We also note that Ecopro Materials' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₩307b.

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

Our Take On Ecopro Materials' Profit Performance

Ecopro Materials' accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Because of this, we think that it may be that Ecopro Materials' statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into Ecopro Materials, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Ecopro Materials you should be mindful of and 1 of them can't be ignored.

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