Rapid Synergy Berhad (KLSE:RAPID) Shareholders Should Be Cautious Despite Solid Earnings

Shareholders didn't seem to be thrilled with Rapid Synergy Berhad's (KLSE:RAPID) recent earnings report, despite healthy profit numbers. Our analysis has found some concerning factors which weaken the profit's foundation.

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A Closer Look At Rapid Synergy 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. 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.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to June 2025, Rapid Synergy Berhad recorded an accrual ratio of 0.21. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of RM28.9m, a look at free cash flow indicates it actually burnt through RM26m in the last year. We also note that Rapid Synergy Berhad's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of RM26m. Having said that, there is more to the story. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

Check out our latest analysis for Rapid Synergy Berhad

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

How Do Unusual Items Influence Profit?

As it happens, there are a few different things to consider when we look at Rapid Synergy Berhad's profit and the last one we'll mention is RM42m gain booked as unusual items. 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. Rapid Synergy Berhad had a rather significant contribution from unusual items relative to its profit to June 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 Rapid Synergy Berhad's Profit Performance

Summing up, Rapid Synergy Berhad received a nice boost to profit from unusual items, but could not match its paper profit with free cash flow. Considering all this we'd argue Rapid Synergy Berhad's profits probably give an overly generous impression of its sustainable level of profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Rapid Synergy Berhad is showing 3 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.