ITCENGLOBAL's (KOSDAQ:124500) Strong Earnings Are Of Good Quality

Investors were underwhelmed by the solid earnings posted by ITCENGLOBAL CO., Ltd. (KOSDAQ:124500) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

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A Closer Look At ITCENGLOBAL's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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. 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2025, ITCENGLOBAL recorded an accrual ratio of -0.23. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of ₩115b during the period, dwarfing its reported profit of ₩22.6b. Notably, ITCENGLOBAL had negative free cash flow last year, so the ₩115b 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 ITCENGLOBAL.

Our Take On ITCENGLOBAL's Profit Performance

As we discussed above, ITCENGLOBAL's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think ITCENGLOBAL's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. At Simply Wall St, we found 1 warning sign for ITCENGLOBAL and we think they deserve your attention.

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