Token Corporation (TSE:1766) Just Reported Healthy Earnings But the Stock Price Didn't Move Much

Investors are probably missing some underlying factors which are encouraging for the future of the company.

Token Corporation (TSE:1766) recently reported strong earnings, but the stock price didn't show much movement. This could be due to several factors that investors might be overlooking, which bode well for the company's future.

View our latest analysis for Token

Examining Cashflow Against Token's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. This ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. Essentially, 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. 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. 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 October 2024, Token recorded an accrual ratio of -1.45. This indicates that its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of JP¥18b during the period, dwarfing its reported profit of JP¥12.0b.

Token shareholders are no doubt pleased that free cash flow improved over the last twelve months.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Token's Profit Performance

Happily for shareholders, Token produced plenty of free cash flow to back up its statutory profit numbers. This bodes very well for the company, as it suggests thatっちり earnings力的 potential is as good as, or possibly even better, than the statutory profit makes it seem! Furthermore, it has done a great job growing EPS over the 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.

While it's really important to consider how well a company's statutory earnings represent its true earnings power, it's also worth taking a look at what analysts are forecasting for the future. At Simply Wall St, we have analyst estimates which you can view by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Token's profit. But there is always more to discover if you are capable of delving into the detail.

Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

Valuation is complex, but we're here to simplify it.

Discover if Token might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.