Even though Kumpulan Kitacon Berhad's (KLSE:KITACON) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.
See our latest analysis for Kumpulan Kitacon Berhad
A Closer Look At Kumpulan Kitacon Berhad's Earnings
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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.
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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.
Kumpulan Kitacon Berhad has an accrual ratio of -0.23 for the year to December 2024. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of RM95m, well over the RM51.9m it reported in profit. Given that Kumpulan Kitacon Berhad had negative free cash flow in the prior corresponding period, the trailing twelve month resul of RM95m would seem to be a step in the right direction.
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 Kumpulan Kitacon Berhad's Profit Performance
Happily for shareholders, Kumpulan Kitacon Berhad produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Kumpulan Kitacon Berhad's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at 5.2% per year over the last three years. 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. If you'd like to know more about Kumpulan Kitacon Berhad as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Kumpulan Kitacon Berhad, and understanding them should be part of your investment process.