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There Are Some Reasons To Suggest That Logicom's (CSE:LOG) Earnings Are A Poor Reflection Of Profitability

Simply Wall St · 1d ago

Solid profit numbers didn't seem to be enough to please Logicom Public Limited's (CSE:LOG) shareholders. We think that they might be concerned about some underlying details that our analysis found.

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earnings-and-revenue-history
CSE:LOG Earnings and Revenue History December 5th 2025

Zooming In On Logicom'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. 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. The ratio shows us how much a company's profit exceeds its FCF.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Logicom has an accrual ratio of 0.32 for the year to September 2025. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, raising questions about how useful that profit figure really is. In the last twelve months it actually had negative free cash flow, with an outflow of €48m despite its profit of €60.5m, mentioned above. It's worth noting that Logicom generated positive FCF of €47m a year ago, so at least they've done it in the past. Having said that, there is more to the story. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part. The good news for shareholders is that Logicom's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

See our latest analysis for Logicom

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

How Do Unusual Items Influence Profit?

The fact that the company had unusual items boosting profit by €16m, in the last year, probably goes some way to explain why its accrual ratio was so weak. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Logicom had a rather significant contribution from unusual items relative to its profit to September 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Logicom's Profit Performance

Summing up, Logicom received a nice boost to profit from unusual items, but could not match its paper profit with free cash flow. For the reasons mentioned above, we think that a perfunctory glance at Logicom's statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Logicom, you'd also look into what risks it is currently facing. For example - Logicom has 1 warning sign we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.