Investors Can Find Comfort In Innocean Worldwide's (KRX:214320) Earnings Quality

Soft earnings didn't appear to concern Innocean Worldwide Inc.'s (KRX:214320) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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Examining Cashflow Against Innocean Worldwide'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. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. 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".

Over the twelve months to September 2025, Innocean Worldwide recorded an accrual ratio of -0.23. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of ₩184b, well over the ₩84.6b it reported in profit. Innocean Worldwide's free cash flow improved over the last year, which is generally good to see.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Innocean Worldwide's Profit Performance

Happily for shareholders, Innocean Worldwide produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Innocean Worldwide's statutory profit actually understates its earnings potential! And the EPS is up 32% annually, over the last three years. 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. If you want to do dive deeper into Innocean Worldwide, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Innocean Worldwide 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 Innocean Worldwide'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.