Investors signalled that they were pleased with Cloudpoint Technology Berhad's (KLSE:CLOUDPT) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.
Zooming In On Cloudpoint Technology 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. 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.
For the year to December 2024, Cloudpoint Technology Berhad had an accrual ratio of -0.28. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of RM28m, well over the RM20.4m it reported in profit. Cloudpoint Technology Berhad's free cash flow improved over the last year, which is generally good to see.
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 Cloudpoint Technology Berhad's Profit Performance
As we discussed above, Cloudpoint Technology Berhad's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Cloudpoint Technology Berhad's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 6.9% 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 Cloudpoint Technology Berhad as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Cloudpoint Technology Berhad you should be aware of.