Some May Be Optimistic About UST's (KOSDAQ:263770) Earnings

Soft earnings didn't appear to concern UST Co., Ltd.'s (KOSDAQ:263770) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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A Closer Look At UST'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. The ratio shows us how much a company's profit exceeds its FCF.

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. 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.

UST has an accrual ratio of -0.14 for the year to September 2025. That indicates that its free cash flow was a fair bit more than its statutory profit. To wit, it produced free cash flow of ₩11b during the period, dwarfing its reported profit of ₩2.84b. UST's free cash flow improved over the last year, which is generally good to see.

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

Our Take On UST's Profit Performance

UST's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think UST's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for UST you should be mindful of and 1 of them can't be ignored.

This note has only looked at a single factor that sheds light on the nature of UST's 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.