ItcenctsLtd (KRX:031820) Is Posting Solid Earnings, But It Is Not All Good News

Following the release of a positive earnings report recently, Itcencts Co.,Ltd.'s (KRX:031820) stock performed well. Investors should be cautious however, as there some causes of concern deeper in the numbers.

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Zooming In On ItcenctsLtd'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). 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. 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 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".

ItcenctsLtd has an accrual ratio of 0.30 for the year to September 2025. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. In the last twelve months it actually had negative free cash flow, with an outflow of ₩51b despite its profit of ₩17.3b, mentioned above. It's worth noting that ItcenctsLtd generated positive FCF of ₩11b a year ago, so at least they've done it in the past. 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.

View our latest analysis for ItcenctsLtd

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

The Impact Of Unusual Items On Profit

The fact that the company had unusual items boosting profit by ₩41b, in the last year, probably goes some way to explain why its accrual ratio was so weak. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that ItcenctsLtd's positive unusual items were quite significant relative to its profit in the year to September 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On ItcenctsLtd's Profit Performance

ItcenctsLtd had a weak accrual ratio, but its profit did receive a boost from unusual items. For the reasons mentioned above, we think that a perfunctory glance at ItcenctsLtd's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about ItcenctsLtd as a business, it's important to be aware of any risks it's facing. Be aware that ItcenctsLtd is showing 2 warning signs in our investment analysis and 1 of those is a bit concerning...

Our examination of ItcenctsLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.