Agmo Holdings Berhad’s (KLSE:AGMO) Profits May Not Reveal Underlying Issues

Agmo Holdings Berhad’s (KLSE:AGMO) 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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One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. 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. 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. To quote a 2014 paper by Lewellen and Resutek, “firms with higher accruals tend to be less profitable in the future”.

Agmo Holdings Berhad has an accrual ratio of 0.24 for the year to September 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. In fact, it had free cash flow of RM2.3m in the last year, which was a lot less than its statutory profit of RM7.17m. Agmo Holdings 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.

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

Agmo Holdings Berhad’s accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Therefore, it seems possible to us that Agmo Holdings Berhad’s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 7.1% EPS growth in the last year. 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. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. For example, Agmo Holdings Berhad has 3 warning signs (and 1 which shouldn’t be ignored) we think you should know about.

Today we’ve zoomed in on a single data point to better understand the nature of Agmo 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.