Unitrontech's (KOSDAQ:142210) Earnings May Just Be The Starting Point

Even though Unitrontech Co., Ltd. (KOSDAQ:142210 ) posted strong earnings, investors appeared to be underwhelmed. We have done some analysis and have found some comforting factors beneath the profit numbers.

We've discovered 3 warning signs about Unitrontech. View them for free.

Examining Cashflow Against Unitrontech'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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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 it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Unitrontech has an accrual ratio of -0.10 for the year to March 2025. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of ₩43b during the period, dwarfing its reported profit of ₩21.0b. Given that Unitrontech had negative free cash flow in the prior corresponding period, the trailing twelve month resul of ₩43b would seem to be a step in the right direction.

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

Our Take On Unitrontech's Profit Performance

As we discussed above, Unitrontech has perfectly satisfactory free cash flow relative to profit. Because of this, we think Unitrontech's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 17% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Unitrontech has 3 warning signs and it would be unwise to ignore these.

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