Solid Earnings Reflect Shinwha Intertek's (KOSDAQ:056700) Strength As A Business

Even though Shinwha Intertek Corp.'s (KOSDAQ:056700) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

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A Closer Look At Shinwha Intertek'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. 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'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Shinwha Intertek has an accrual ratio of -0.13 for the year to September 2025. Therefore, its statutory earnings were quite a lot less than its free cashflow. In fact, it had free cash flow of ₩27b in the last year, which was a lot more than its statutory profit of ₩7.35b. Notably, Shinwha Intertek had negative free cash flow last year, so the ₩27b 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 Shinwha Intertek.

Our Take On Shinwha Intertek's Profit Performance

As we discussed above, Shinwha Intertek has perfectly satisfactory free cash flow relative to profit. Because of this, we think Shinwha Intertek's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Shinwha Intertek 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 Shinwha Intertek'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. 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.