Nasdaq
華爾街日報SNS Network Technology Berhad's (KLSE:SNS) Solid Earnings May Rest On Weak Foundations
The market shrugged off SNS Network Technology Berhad's (KLSE:SNS) solid earnings report. We think that investors might be worried about some concerning underlying factors.
Zooming In On SNS Network Technology 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. 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 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. 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 October 2025, SNS Network Technology Berhad recorded an accrual ratio of 0.31. 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. In the last twelve months it actually had negative free cash flow, with an outflow of RM50m despite its profit of RM50.9m, mentioned above. We also note that SNS Network Technology Berhad's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of RM50m.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of SNS Network Technology Berhad.
Our Take On SNS Network Technology Berhad's Profit Performance
SNS Network Technology Berhad didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Therefore, it seems possible to us that SNS Network Technology Berhad's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 48% in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with SNS Network Technology Berhad (including 1 which makes us a bit uncomfortable).
Today we've zoomed in on a single data point to better understand the nature of SNS Network Technology Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.