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Yahoo
12-03-2025
- Business
- Yahoo
Aneka Jaringan Holdings Berhad (KLSE:ANEKA) Is Finding It Tricky To Allocate Its Capital
Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Aneka Jaringan Holdings Berhad (KLSE:ANEKA) we aren't filled with optimism, but let's investigate further. For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Aneka Jaringan Holdings Berhad: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.036 = RM4.2m ÷ (RM259m - RM142m) (Based on the trailing twelve months to November 2024). Thus, Aneka Jaringan Holdings Berhad has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Construction industry average of 8.9%. See our latest analysis for Aneka Jaringan Holdings Berhad Historical performance is a great place to start when researching a stock so above you can see the gauge for Aneka Jaringan Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Aneka Jaringan Holdings Berhad's past further, check out this free graph covering Aneka Jaringan Holdings Berhad's past earnings, revenue and cash flow. There is reason to be cautious about Aneka Jaringan Holdings Berhad, given the returns are trending downwards. To be more specific, the ROCE was 24% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Aneka Jaringan Holdings Berhad to turn into a multi-bagger. On a separate but related note, it's important to know that Aneka Jaringan Holdings Berhad has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks. In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 21% over the last three years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere. If you want to continue researching Aneka Jaringan Holdings Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered. While Aneka Jaringan Holdings Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Sign in to access your portfolio
Yahoo
08-03-2025
- Business
- Yahoo
Impressive Earnings May Not Tell The Whole Story For LFE Corporation Berhad (KLSE:LFECORP)
Despite posting some strong earnings, the market for LFE Corporation Berhad's (KLSE:LFECORP) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors. See our latest analysis for LFE Corporation Berhad One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. 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 December 2024, LFE Corporation Berhad had an accrual ratio of 0.28. We can therefore deduce that its free cash flow fell well short of covering its statutory profit, suggesting we might want to think twice before putting a lot of weight on the latter. Indeed, in the last twelve months it reported free cash flow of RM4.2m, which is significantly less than its profit of RM25.4m. LFE Corporation Berhad's free cash flow actually declined over the last year, but it may bounce back next year, since free cash flow is often more volatile than accounting profits. However, as we will discuss below, we can see that the company's accrual ratio has been impacted by its tax situation. This would certainly have contributed to the weak cash conversion. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of LFE Corporation Berhad. Moving on from the accrual ratio, we note that LFE Corporation Berhad profited from a tax benefit which contributed RM6.6m to profit. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business. This year, LFE Corporation Berhad couldn't match its profit with cashflow. On top of that, the unsustainable nature of tax benefits mean that there's a chance profit may be lower next year, certainly in the absence of strong growth. Considering all this we'd argue LFE Corporation Berhad's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into LFE Corporation Berhad, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for LFE Corporation Berhad (1 is significant) you should be familiar with. Our examination of LFE Corporation Berhad 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 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. 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 with significant insider holdings to be useful. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
