Investors Can Find Comfort In RemedLtd's (KOSDAQ:302550) Earnings Quality

Soft earnings didn't appear to concern Remed Co.,Ltd.'s (KOSDAQ:302550) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Zooming In On RemedLtd'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. 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'.

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 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

RemedLtd has an accrual ratio of 0.20 for the year to September 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of ₩3.28b, a look at free cash flow indicates it actually burnt through ₩3.6b in the last year. It's worth noting that RemedLtd generated positive FCF of ₩5.8b a year ago, so at least they've done it in the past. However, that's not all there is to consider. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part. The good news for shareholders is that RemedLtd's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF. As a result, some shareholders may be looking for stronger cash conversion in the current year.

Check out our latest analysis for RemedLtd

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

The Impact Of Unusual Items On Profit

RemedLtd's profit suffered from unusual items, which reduced profit by ₩443m in the last twelve months. In the case where this was a non-cash charge it would have made it easier to have high cash conversion, so it's surprising that the accrual ratio tells a different story. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. RemedLtd took a rather significant hit from unusual items in the year to September 2025. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On RemedLtd's Profit Performance

RemedLtd saw unusual items weigh on its profit, which should have made it easier to show high cash conversion, which it did not do, according to its accrual ratio. Considering all the aforementioned, we'd venture that RemedLtd's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you want to do dive deeper into RemedLtd, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for RemedLtd (1 is significant!) that we believe deserve your full attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.