We Think You Should Be Aware Of Some Concerning Factors In STX Green Logis' (KRX:465770) Earnings

The recent earnings posted by STX Green Logis Ltd (KRX:465770) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Check out our latest analysis for STX Green Logis

Zooming In On STX Green Logis' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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. 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 December 2023, STX Green Logis had an accrual ratio of 1.32. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. Even though it reported a profit of ₩4.31b, a look at free cash flow indicates it actually burnt through ₩25b in the last year. Unfortunately, we don't have data on STX Green Logis' free cash flow for the prior year; that's not necessarily a bad thing, though we do generally prefer to be able to see a bit of a company's history.

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

Our Take On STX Green Logis' Profit Performance

As we have made quite clear, we're a bit worried that STX Green Logis didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that STX Green Logis' underlying earnings power is lower than its statutory profit. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 4 warning signs for STX Green Logis (of which 2 are a bit concerning!) you should know about.

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