Some Investors May Be Willing To Look Past HyosungONBCo.Ltd's (KOSDAQ:097870) Soft Earnings

The market for HyosungONBCo.,Ltd's (KOSDAQ:097870) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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Examining Cashflow Against HyosungONBCo.Ltd's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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. 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.

Over the twelve months to June 2025, HyosungONBCo.Ltd recorded an accrual ratio of -0.10. That indicates that its free cash flow was a fair bit more than its statutory profit. Indeed, in the last twelve months it reported free cash flow of ₩8.2b, well over the ₩2.81b it reported in profit. HyosungONBCo.Ltd's free cash flow improved over the last year, which is generally good to see. Having said that, there is more to the story. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

See our latest analysis for HyosungONBCo.Ltd

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

The Impact Of Unusual Items On Profit

HyosungONBCo.Ltd's profit was reduced by unusual items worth ₩425m in the last twelve months, and this helped it produce high cash conversion, as reflected by its unusual items. In a scenario where those unusual items included non-cash charges, we'd expect to see a strong accrual ratio, which is exactly what has happened in this case. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If HyosungONBCo.Ltd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On HyosungONBCo.Ltd's Profit Performance

In conclusion, both HyosungONBCo.Ltd's accrual ratio and its unusual items suggest that its statutory earnings are probably reasonably conservative. Based on these factors, we think HyosungONBCo.Ltd's earnings potential is at least as good as it seems, and maybe even better! If you want to do dive deeper into HyosungONBCo.Ltd, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with HyosungONBCo.Ltd, and understanding this should be part of your investment process.

After our examination into the nature of HyosungONBCo.Ltd's profit, we've come away optimistic for the company. 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. 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.