Shareholders Can Be Confident That DONGSUNG CHEMICAL's (KRX:102260) Earnings Are High Quality

Even though DONGSUNG CHEMICAL Co., Ltd.'s (KRX:102260) 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.

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A Closer Look At DONGSUNG CHEMICAL'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.

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

For the year to September 2025, DONGSUNG CHEMICAL 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 ₩106b in the last year, which was a lot more than its statutory profit of ₩38.2b. Notably, DONGSUNG CHEMICAL had negative free cash flow last year, so the ₩106b 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 DONGSUNG CHEMICAL.

Our Take On DONGSUNG CHEMICAL's Profit Performance

As we discussed above, DONGSUNG CHEMICAL has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that DONGSUNG CHEMICAL's statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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. While conducting our analysis, we found that DONGSUNG CHEMICAL has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of DONGSUNG CHEMICAL'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.