We Think Wing Yip Food Holdings Group's (KOSDAQ:900340) Robust Earnings Are Conservative

Even though Wing Yip Food Holdings Group Limited (KOSDAQ:900340 ) posted strong earnings, investors appeared to be underwhelmed. We have done some analysis and have found some comforting factors beneath the profit numbers.

See our latest analysis for Wing Yip Food Holdings Group

Examining Cashflow Against Wing Yip Food Holdings Group's 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. 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'.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. 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. 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 June 2024, Wing Yip Food Holdings Group had an accrual ratio of -0.15. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of ₩33b during the period, dwarfing its reported profit of ₩18.8b. Given that Wing Yip Food Holdings Group had negative free cash flow in the prior corresponding period, the trailing twelve month resul of ₩33b would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wing Yip Food Holdings Group.

Our Take On Wing Yip Food Holdings Group's Profit Performance

As we discussed above, Wing Yip Food Holdings Group has perfectly satisfactory free cash flow relative to profit. Because of this, we think Wing Yip Food Holdings Group's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 29% in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Wing Yip Food Holdings Group has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Wing Yip Food Holdings Group's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.