Some May Be Optimistic About Sangshin Electronics' (KOSDAQ:263810) Earnings

Shareholders appeared unconcerned with Sangshin Electronics Co., Ltd.'s (KOSDAQ:263810) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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Examining Cashflow Against Sangshin Electronics' Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to March 2025, Sangshin Electronics had an accrual ratio of -0.17. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of ₩12b, well over the ₩2.26b it reported in profit. Notably, Sangshin Electronics had negative free cash flow last year, so the ₩12b 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 Sangshin Electronics.

Our Take On Sangshin Electronics' Profit Performance

Happily for shareholders, Sangshin Electronics produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Sangshin Electronics' statutory profit actually understates its earnings potential! And the EPS is up 42% annually, over the last three years. 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. If you'd like to know more about Sangshin Electronics as a business, it's important to be aware of any risks it's facing. For example - Sangshin Electronics has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sangshin Electronics' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.