The subdued market reaction suggests that Matrix Concepts Holdings Berhad's (KLSE:MATRIX) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
View our latest analysis for Matrix Concepts Holdings Berhad
A Closer Look At Matrix Concepts Holdings Berhad'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. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".
Matrix Concepts Holdings Berhad has an accrual ratio of 0.27 for the year to December 2024. Unfortunately, that means its free cash flow fell significantly short of its reported profits. In the last twelve months it actually had negative free cash flow, with an outflow of RM364m despite its profit of RM229.9m, mentioned above. We saw that FCF was RM364m a year ago though, so Matrix Concepts Holdings Berhad has at least been able to generate positive FCF in the past. One positive for Matrix Concepts Holdings Berhad shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. As a result, some shareholders may be looking for stronger cash conversion in the current year.
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 Matrix Concepts Holdings Berhad's Profit Performance
Matrix Concepts Holdings Berhad's accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Because of this, we think that it may be that Matrix Concepts Holdings Berhad's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Matrix Concepts Holdings Berhad as a business, it's important to be aware of any risks it's facing. For example, Matrix Concepts Holdings Berhad has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.