We Think You Can Look Beyond Ubiquoss Holdings' (KOSDAQ:078070) Lackluster Earnings

Shareholders appeared unconcerned with Ubiquoss Holdings Inc.'s (KOSDAQ:078070) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

A Closer Look At Ubiquoss Holdings' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. 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 March 2025, Ubiquoss Holdings recorded an accrual ratio of -0.23. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of ₩35b during the period, dwarfing its reported profit of ₩7.08b. Ubiquoss Holdings did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie. 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.

Check out our latest analysis for Ubiquoss Holdings

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

How Do Unusual Items Influence Profit?

Ubiquoss Holdings' profit was reduced by unusual items worth ₩3.6b in the last twelve months, and this helped it produce high cash conversion, as reflected by its unusual items. In a scenario where those unusual items included non-cash charges, we'd expect to see a strong accrual ratio, which is exactly what has happened in this case. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Ubiquoss Holdings to produce a higher profit next year, all else being equal.

Our Take On Ubiquoss Holdings' Profit Performance

Considering both Ubiquoss Holdings' 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 Ubiquoss Holdings' statutory profit probably understates its earnings potential! If you'd like to know more about Ubiquoss Holdings as a business, it's important to be aware of any risks it's facing. For instance, we've identified 3 warning signs for Ubiquoss Holdings (1 is a bit concerning) you should be familiar with.

After our examination into the nature of Ubiquoss Holdings' profit, we've come away optimistic for the company. 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.