Solid Earnings Reflect Hanchang Ind.Co.Ltd's (KOSDAQ:079170) Strength As A Business

Even though Hanchang Ind.Co.,Ltd's (KOSDAQ:079170) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Check out our latest analysis for Hanchang Ind.Co.Ltd

Zooming In On Hanchang Ind.Co.Ltd'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. 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.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to September 2024, Hanchang Ind.Co.Ltd had an accrual ratio of -0.12. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. In fact, it had free cash flow of ₩14b in the last year, which was a lot more than its statutory profit of ₩7.43b. Hanchang Ind.Co.Ltd shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hanchang Ind.Co.Ltd.

Our Take On Hanchang Ind.Co.Ltd's Profit Performance

Hanchang Ind.Co.Ltd's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Hanchang Ind.Co.Ltd's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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 while earnings quality is important, it's equally important to consider the risks facing Hanchang Ind.Co.Ltd at this point in time. You'd be interested to know, that we found 1 warning sign for Hanchang Ind.Co.Ltd and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of Hanchang Ind.Co.Ltd'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. 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.