Investors Shouldn't Be Too Comfortable With Nextgreen Global Berhad's (KLSE:NGGB) Earnings

editorial-team@simplywallst.com (Simply Wall St)

Sat, May 10, 2025, 7:54 PM 4 min read

Despite posting immoderate beardown earnings, the marketplace for Nextgreen Global Berhad's (KLSE:NGGB) banal hasn't moved much. Our investigation suggests that this mightiness beryllium due to the fact that shareholders person noticed immoderate concerning underlying factors.

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Many investors haven't heard of the accrual ratio from cashflow, but it is really a utile measurement of however good a company's nett is backed up by escaped currency travel (FCF) during a fixed period. In plain english, this ratio subtracts FCF from nett profit, and divides that fig by the company's mean operating assets implicit that period. This ratio tells america however overmuch of a company's nett is not backed by escaped cashflow.

Therefore, it's really considered a bully happening erstwhile a institution has a antagonistic accrual ratio, but a atrocious happening if its accrual ratio is positive. While it's not a occupation to person a affirmative accrual ratio, indicating a definite level of non-cash profits, a precocious accrual ratio is arguably a atrocious thing, due to the fact that it indicates insubstantial profits are not matched by currency flow. To punctuation a 2014 insubstantial by Lewellen and Resutek, "firms with higher accruals thin to beryllium little profitable successful the future".

For the twelvemonth to December 2024, Nextgreen Global Berhad had an accrual ratio of 0.22. We tin truthful deduce that its escaped currency travel fell good abbreviated of covering its statutory profit. Even though it reported a nett of RM23.1m, a look astatine escaped currency travel indicates it really burnt done RM72m successful the past year. Coming disconnected the backmost of antagonistic escaped currency travel past year, we ideate immoderate shareholders mightiness wonderment if its currency pain of RM72m, this year, indicates precocious risk. Notably, the institution has issued caller shares, frankincense diluting existing shareholders and reducing their stock of aboriginal earnings.

Note: we ever urge investors cheque equilibrium expanse strength. Click present to beryllium taken to our equilibrium expanse investigation of Nextgreen Global Berhad.

In bid to recognize the imaginable for per stock returns, it is indispensable to see however overmuch a institution is diluting shareholders. In fact, Nextgreen Global Berhad accrued the fig of shares connected contented by 5.2% implicit the past 12 months by issuing caller shares. Therefore, each stock present receives a smaller information of profit. To observe nett income portion ignoring dilution is similar rejoicing due to the fact that you person a azygous portion of a larger pizza, but ignoring the information that the pizza is present chopped into galore much slices. You tin spot a illustration of Nextgreen Global Berhad's EPS by clicking here.