YX Precious Metals Bhd's (KLSE:YXPM) Solid Earnings May Rest On Weak Foundations

YX Precious Metals Bhd's (KLSE:YXPM) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

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Examining Cashflow Against YX Precious Metals Bhd'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. The ratio shows us how much a company's profit exceeds its FCF.

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.

YX Precious Metals Bhd has an accrual ratio of 0.23 for the year to September 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of RM10.1m, a look at free cash flow indicates it actually burnt through RM16m in the last year. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of RM16m, this year, indicates high risk. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

Check out our latest analysis for YX Precious Metals Bhd

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of YX Precious Metals Bhd.

The Impact Of Unusual Items On Profit

Given the accrual ratio, it's not overly surprising that YX Precious Metals Bhd's profit was boosted by unusual items worth RM1.1m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If YX Precious Metals Bhd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On YX Precious Metals Bhd's Profit Performance

YX Precious Metals Bhd had a weak accrual ratio, but its profit did receive a boost from unusual items. For the reasons mentioned above, we think that a perfunctory glance at YX Precious Metals Bhd's statutory profits might make it look better than it really is on an underlying level. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 4 warning signs for YX Precious Metals Bhd (2 can't be ignored!) and we strongly recommend you look at these before investing.

Our examination of YX Precious Metals Bhd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.