Aneka Jaringan Holdings Berhad's (KLSE:ANEKA) Performance Is Even Better Than Its Earnings Suggest

Aneka Jaringan Holdings Berhad (KLSE:ANEKA) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

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A Closer Look At Aneka Jaringan Holdings Berhad'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). 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.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. 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".

Aneka Jaringan Holdings Berhad has an accrual ratio of -0.17 for the year to August 2025. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of RM27m in the last year, which was a lot more than its statutory profit of RM4.47m. Aneka Jaringan Holdings Berhad's free cash flow improved over the last year, which is generally good to see. However, that's not all there is to consider. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part.

See our latest analysis for Aneka Jaringan Holdings Berhad

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Aneka Jaringan Holdings Berhad.

How Do Unusual Items Influence Profit?

Surprisingly, given Aneka Jaringan Holdings Berhad's accrual ratio implied strong cash conversion, its paper profit was actually boosted by RM2.1m in unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Aneka Jaringan Holdings Berhad had a rather significant contribution from unusual items relative to its profit to August 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Aneka Jaringan Holdings Berhad's Profit Performance

In conclusion, Aneka Jaringan Holdings Berhad's accrual ratio suggests its statutory earnings are of good quality, but on the other hand the profits were boosted by unusual items. Based on these factors, it's hard to tell if Aneka Jaringan Holdings Berhad's profits are a reasonable reflection of its underlying profitability. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Aneka Jaringan Holdings Berhad has 2 warning signs and it would be unwise to ignore these.

Our examination of Aneka Jaringan Holdings Berhad has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.