As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. The accrual 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. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".
Over the twelve months to September 2020, Syscom Computer Engineering recorded an accrual ratio of -0.32. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of NT$769m during the period, dwarfing its reported profit of NT$140.3m. Given that computer engineering definition Computer Engineering had negative free cash flow in the prior corresponding period, the trailing twelve month resul of NT$769m would seem to be a step in the right direction. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.
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