We Like The Quality Of OPASNET's (KOSDAQ:173130) Earnings

The market seemed underwhelmed by the solid earnings posted by OPASNET co., Ltd. (KOSDAQ:173130) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

Our free stock report includes 2 warning signs investors should be aware of before investing in OPASNET. Read for free now.

Zooming In On OPASNET'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. The ratio shows us how much a company's profit exceeds its FCF.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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".

OPASNET has an accrual ratio of -0.37 for the year to March 2025. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of ₩24b in the last year, which was a lot more than its statutory profit of ₩9.89b. OPASNET'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 OPASNET.

Our Take On OPASNET's Profit Performance

As we discussed above, OPASNET's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think OPASNET's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 62% annually, over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing OPASNET at this point in time. You'd be interested to know, that we found 2 warning signs for OPASNET and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of OPASNET's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.