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Soft earnings don’t seem worrying Xilin Architectural Planning Co., Ltd. (KOSDAQ:037440) shareholders last week. We’ve done some digging and we believe the earnings are stronger than they appear.
Check out our latest analysis for Heerim Architects & Planners
A closer look at Heerim Architects & Planners’ earnings
Many investors have never heard of it cash flow accrual ratio, but it’s actually a useful measure of how well a company’s profits are supported by free cash flow (FCF) in a given period. The accrual ratio subtracts free cash flow from profit for a given period and divides the result by the company’s average operating assets for that period. You can think of the cash flow accrual ratio as the “non-FCF margin.”
Therefore, a negative accrual ratio is positive for the company, while a positive accrual ratio is negative. That’s not to say we should worry about a positive accrual ratio, but it’s worth noting that the accrual ratio is quite high. That’s because some academic research shows that high accrual ratios tend to lead to lower profits or slower profit growth.
Heerim Architects & Planners’ accrual ratio for the twelve months to December 2023 was -0.11. As a result, its statutory earnings are well below its free cash flow. In fact, over the last 12 months, the company reported free cash flow of ₩12b, well above the profit of ₩6.18b it reported. Heerim Architects & Planners does see its free cash flow decline year over year, which is less than ideal, like an episode of The Simpsons without groundskeeper Willy.
notes: We always recommend investors check the strength of the balance sheet. View our balance sheet analysis for Heerim Architects & Planners here.
Our view on Heerim Architects & Planners’ profit performance
As we discussed above, Heerim Architects & Planners’ accrual ratio is solid, indicating strong free cash flow. Based on this observation, we believe Heerim Architects & Planners’ statutory profits may actually understate its profit potential! On top of that, earnings per share have grown 26% annually over the past three years. The purpose of this article is to assess how far we can rely on statutory earnings to reflect the company’s potential, but there’s a lot more to consider. So if you want to dive deeper into this stock, it’s important to consider the risks it faces.For example, we found 2 warning signs You should check it out to get a better understanding of Heerim Architects & Planners.
Today, we’re zooming in on a data point to better understand the nature of Heerim Architects & Planners’ profits. But there’s always more to discover if you can focus on the details. Some consider a high return on equity to be a good indicator of a quality business.While you may need to do some research, you may find that free A collection of companies boasting a high return on equity, or a list of useful stocks that insiders are buying.
Valuation is complex, but we’re helping to make it simple.
see if Xilin Architects and Planners could be overvalued or undervalued by looking at our comprehensive analysis, which includes Fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This article from Simply Wall St is general in nature. We only use unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative information. Simply Wall St does not hold a position in any of the stocks mentioned.
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