There May Be Some Bright Spots In SAMT's (KOSDAQ:031330) Earnings

Soft earnings didn't appear to concern SAMT Co., Ltd.'s (KOSDAQ:031330) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for SAMT

A Closer Look At SAMT'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. The ratio shows us how much a company's profit exceeds its FCF.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

SAMT has an accrual ratio of -0.21 for the year to December 2023. 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 ₩133b during the period, dwarfing its reported profit of ₩32.9b. Notably, SAMT had negative free cash flow last year, so the ₩133b 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 SAMT.

Our Take On SAMT's Profit Performance

Happily for shareholders, SAMT produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think SAMT's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you want to do dive deeper into SAMT, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for SAMT you should know about.

This note has only looked at a single factor that sheds light on the nature of SAMT'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 that insiders are buying.

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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.