We Think COPUS KOREA's (KOSDAQ:322780) Robust Earnings Are Conservative

The subdued stock price reaction suggests that COPUS KOREA Co., Ltd.'s (KOSDAQ:322780) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

See our latest analysis for COPUS KOREA

Examining Cashflow Against COPUS KOREA's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. 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. 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.

COPUS KOREA has an accrual ratio of -0.30 for the year to December 2023. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. In fact, it had free cash flow of ₩25b in the last year, which was a lot more than its statutory profit of ₩3.30b. COPUS KOREA'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 COPUS KOREA.

Our Take On COPUS KOREA's Profit Performance

Happily for shareholders, COPUS KOREA produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think COPUS KOREA's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. If you'd like to know more about COPUS KOREA as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that COPUS KOREA has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of COPUS KOREA's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.