Chong Kun Dang Pharmaceutical’s (KRX:185750) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that Chong Kun Dang Pharmaceutical Corp.’s (KRX:185750) recent earnings didn’t contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

We’ve found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Examining Cashflow Against Chong Kun Dang Pharmaceutical’s 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). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company’s average operating assets over that period. You could think of the accrual ratio from cashflow as the ‘non-FCF profit ratio’.

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. 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. That’s because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Chong Kun Dang Pharmaceutical has an accrual ratio of 0.23 for the year to September 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of ₩59.2b, a look at free cash flow indicates it actually burnt through ₩144b in the last year. It’s worth noting that Chong Kun Dang Pharmaceutical generated positive FCF of ₩120b a year ago, so at least they’ve done it in the past.

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 Chong Kun Dang Pharmaceutical’s Profit Performance

Chong Kun Dang Pharmaceutical didn’t convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Chong Kun Dang Pharmaceutical’s statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. 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. Case in point: We’ve spotted 3 warning signs for Chong Kun Dang Pharmaceutical you should be mindful of and 1 of them doesn’t sit too well with us.

This note has only looked at a single factor that sheds light on the nature of Chong Kun Dang Pharmaceutical’s profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.