We Like The Quality Of Teladan Setia Group Berhad's (KLSE:TELADAN) Earnings

The stock was sluggish on the back of Teladan Setia Group Berhad's (KLSE:TELADAN) recent earnings report. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

See our latest analysis for Teladan Setia Group Berhad

Examining Cashflow Against Teladan Setia Group 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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.

Teladan Setia Group Berhad has an accrual ratio of -0.12 for the year to September 2022. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. To wit, it produced free cash flow of RM114m during the period, dwarfing its reported profit of RM44.6m. Teladan Setia Group 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 Teladan Setia Group Berhad.

Our Take On Teladan Setia Group Berhad's Profit Performance

As we discussed above, Teladan Setia Group Berhad has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Teladan Setia Group Berhad's statutory profit actually understates its earnings potential! And the EPS is up 45% over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Teladan Setia Group Berhad as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Teladan Setia Group Berhad has 1 warning sign and it would be unwise to ignore it.

Today we've zoomed in on a single data point to better understand the nature of Teladan Setia Group 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. 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 that insiders are buying 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.