Dong Won Fisheries' (KRX:030720) Strong Earnings Are Of Good Quality

The subdued stock price reaction suggests that Dong Won Fisheries Co., Ltd.'s (KRX:030720) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

View our latest analysis for Dong Won Fisheries

A Closer Look At Dong Won Fisheries' 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. 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. 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.

Over the twelve months to December 2024, Dong Won Fisheries recorded an accrual ratio of -0.18. Therefore, its statutory earnings were very significantly 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 ₩5.11b. Notably, Dong Won Fisheries had negative free cash flow last year, so the ₩18b it produced this year was a welcome improvement.

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

Our Take On Dong Won Fisheries' Profit Performance

As we discussed above, Dong Won Fisheries' accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Dong Won Fisheries' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Dong Won Fisheries as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Dong Won Fisheries, and understanding this should be part of your investment process.

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