Investors Can Find Comfort In Harrisons Holdings (Malaysia) Berhad's (KLSE:HARISON) Earnings Quality

Shareholders appeared unconcerned with Harrisons Holdings (Malaysia) Berhad's (KLSE:HARISON) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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Examining Cashflow Against Harrisons Holdings (Malaysia) 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. 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. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. 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 September 2025, Harrisons Holdings (Malaysia) Berhad had an accrual ratio of -0.12. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of RM101m in the last year, which was a lot more than its statutory profit of RM41.4m. Notably, Harrisons Holdings (Malaysia) Berhad had negative free cash flow last year, so the RM101m it produced this year was a welcome improvement.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Harrisons Holdings (Malaysia) Berhad.

Our Take On Harrisons Holdings (Malaysia) Berhad's Profit Performance

As we discussed above, Harrisons Holdings (Malaysia) Berhad has perfectly satisfactory free cash flow relative to profit. Because of this, we think Harrisons Holdings (Malaysia) Berhad's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Harrisons Holdings (Malaysia) Berhad as a business, it's important to be aware of any risks it's facing. For example - Harrisons Holdings (Malaysia) Berhad has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Harrisons Holdings (Malaysia) Berhad's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.