Hyundai EzwelLtd's (KOSDAQ:090850) Performance Is Even Better Than Its Earnings Suggest

When companies post strong earnings, the stock generally performs well, just like Hyundai Ezwel Co.,Ltd.'s (KOSDAQ:090850) stock has recently. Our analysis found some more factors that we think are good for shareholders.

We've discovered 3 warning signs about Hyundai EzwelLtd. View them for free.

A Closer Look At Hyundai EzwelLtd's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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 it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Hyundai EzwelLtd has an accrual ratio of -1.04 for the year to March 2025. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of ₩27b, well over the ₩12.7b it reported in profit. Notably, Hyundai EzwelLtd had negative free cash flow last year, so the ₩27b it produced this year was a welcome improvement. However, that's not all there is to consider. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part.

See our latest analysis for Hyundai EzwelLtd

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

How Do Unusual Items Influence Profit?

Hyundai EzwelLtd's profit was reduced by unusual items worth ₩6.4b in the last twelve months, and this helped it produce high cash conversion, as reflected by its unusual items. This is what you'd expect to see where a company has a non-cash charge reducing paper profits. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Hyundai EzwelLtd to produce a higher profit next year, all else being equal.

Our Take On Hyundai EzwelLtd's Profit Performance

Considering both Hyundai EzwelLtd's accrual ratio and its unusual items, we think its statutory earnings are unlikely to exaggerate the company's underlying earnings power. After considering all this, we reckon Hyundai EzwelLtd's statutory profit probably understates its earnings potential! If you want to do dive deeper into Hyundai EzwelLtd, you'd also look into what risks it is currently facing. For example, Hyundai EzwelLtd has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

Our examination of Hyundai EzwelLtd has focussed on certain factors that can make its earnings look better than they are. And it has passed with flying colours. But there are plenty of other ways to inform your opinion of a company. 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. 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.