Shareholders Will Be Pleased With The Quality of Grand Korea Leisure's (KRX:114090) Earnings

Investors were underwhelmed by the solid earnings posted by Grand Korea Leisure Co., Ltd. (KRX:114090) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

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Examining Cashflow Against Grand Korea Leisure'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. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to September 2025, Grand Korea Leisure had an accrual ratio of -0.57. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of ₩96b, well over the ₩53.2b it reported in profit. Grand Korea Leisure's free cash flow improved over the last year, which is generally good to see. Having said that, there is more to the story. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part.

Check out our latest analysis for Grand Korea Leisure

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.

How Do Unusual Items Influence Profit?

Surprisingly, given Grand Korea Leisure's accrual ratio implied strong cash conversion, its paper profit was actually boosted by ₩5.2b in unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Grand Korea Leisure's Profit Performance

In conclusion, Grand Korea Leisure's accrual ratio suggests its statutory earnings are of good quality, but on the other hand the profits were boosted by unusual items. Considering all the aforementioned, we'd venture that Grand Korea Leisure's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you'd like to know more about Grand Korea Leisure as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Grand Korea Leisure and you'll want to know about this.

Our examination of Grand Korea Leisure has focussed on certain factors that can make its earnings look better than they are. 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.