Shareholders Will Be Pleased With The Quality of Hankook Shell OilLtd's (KRX:002960) Earnings

When companies post strong earnings, the stock generally performs well, just like Hankook Shell Oil Co.,Ltd.'s (KRX:002960) stock has recently. Our analysis found some more factors that we think are good for shareholders.

Check out our latest analysis for Hankook Shell OilLtd

Zooming In On Hankook Shell OilLtd's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. 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. 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. 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.

Hankook Shell OilLtd has an accrual ratio of -0.16 for the year to March 2024. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of ₩42b during the period, dwarfing its reported profit of ₩38.2b. Hankook Shell OilLtd shareholders are no doubt pleased that free cash flow improved 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 Hankook Shell OilLtd's Profit Performance

Happily for shareholders, Hankook Shell OilLtd produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Hankook Shell OilLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 67% per year over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Hankook Shell OilLtd.

This note has only looked at a single factor that sheds light on the nature of Hankook Shell OilLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.