Why Kronologi Asia Berhad's (KLSE:KRONO) Earnings Are Better Than They Seem

Despite posting healthy earnings, Kronologi Asia Berhad's (KLSE:KRONO ) stock has been quite weak. Along with the solid headline numbers, we think that investors have some reasons for optimism.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Examining Cashflow Against Kronologi Asia Berhad's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to October 2025, Kronologi Asia Berhad had an accrual ratio of -0.17. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of RM76m, well over the RM9.04m it reported in profit. Notably, Kronologi Asia Berhad had negative free cash flow last year, so the RM76m it produced this year was a welcome improvement.

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

Our Take On Kronologi Asia Berhad's Profit Performance

Happily for shareholders, Kronologi Asia Berhad produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Kronologi Asia Berhad's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 32% over the last twelve months. 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. If you want to do dive deeper into Kronologi Asia Berhad, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Kronologi Asia Berhad you should know about.

This note has only looked at a single factor that sheds light on the nature of Kronologi Asia Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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.

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.