Yesco Holdings' (KRX:015360) Earnings Seem To Be Promising

The market seemed underwhelmed by last week's earnings announcement from Yesco Holdings Co., Ltd. (KRX:015360) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

Check out our latest analysis for Yesco Holdings

Examining Cashflow Against Yesco Holdings' 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.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to December 2023, Yesco Holdings recorded an accrual ratio of -0.14. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of ₩116b in the last year, which was a lot more than its statutory profit of ₩26.3b. Notably, Yesco Holdings had negative free cash flow last year, so the ₩116b 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 Yesco Holdings.

Our Take On Yesco Holdings' Profit Performance

Yesco Holdings' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Yesco Holdings' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 1 warning sign for Yesco Holdings and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Yesco Holdings' 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 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.