Creverse's (KOSDAQ:096240) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Creverse, Inc.'s (KOSDAQ:096240) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

We've discovered 4 warning signs about Creverse. View them for free.

A Closer Look At Creverse's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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'.

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

For the year to March 2025, Creverse had an accrual ratio of -0.10. Therefore, its statutory earnings were quite a lot less than its free cashflow. In fact, it had free cash flow of ₩18b in the last year, which was a lot more than its statutory profit of ₩7.40b. Creverse did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie.

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

Our Take On Creverse's Profit Performance

As we discussed above, Creverse has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Creverse's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 Creverse, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for Creverse you should be mindful of and 2 of these are potentially serious.

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