MAKUS' (KOSDAQ:093520) Earnings Seem To Be Promising

MAKUS Inc. (KOSDAQ:093520) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

Our free stock report includes 3 warning signs investors should be aware of before investing in MAKUS. Read for free now.

A Closer Look At MAKUS' 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

MAKUS has an accrual ratio of -0.61 for the year to March 2025. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of ₩67b during the period, dwarfing its reported profit of ₩23.1b. Notably, MAKUS had negative free cash flow last year, so the ₩67b it produced this year was a welcome improvement.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On MAKUS' Profit Performance

As we discussed above, MAKUS' accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think MAKUS' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 5.1% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into MAKUS, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for MAKUS (1 is concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of MAKUS' 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. 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.