Some May Be Optimistic About C.I. Holdings Berhad's (KLSE:CIHLDG) Earnings

Shareholders appeared unconcerned with C.I. Holdings Berhad's (KLSE:CIHLDG) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for C.I. Holdings Berhad

Zooming In On C.I. Holdings Berhad's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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. 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.

C.I. Holdings Berhad has an accrual ratio of -0.23 for the year to December 2024. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of RM253m during the period, dwarfing its reported profit of RM73.7m. C.I. Holdings Berhad shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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

Our Take On C.I. Holdings Berhad's Profit Performance

Happily for shareholders, C.I. Holdings Berhad produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that C.I. Holdings Berhad's statutory profit actually understates its earnings potential! And we are pleased to note that EPS is at least heading in the right direction 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of C.I. Holdings Berhad.

This note has only looked at a single factor that sheds light on the nature of C.I. Holdings Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.