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There May Be Underlying Issues With The Quality Of FITTERS Diversified Berhad's (KLSE:FITTERS) Earnings

Simply Wall St · 4d ago

FITTERS Diversified Berhad's (KLSE:FITTERS) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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earnings-and-revenue-history
KLSE:FITTERS Earnings and Revenue History January 7th 2026

Examining Cashflow Against FITTERS Diversified 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. 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. 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. 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".

Over the twelve months to August 2025, FITTERS Diversified Berhad recorded an accrual ratio of 0.28. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Over the last year it actually had negative free cash flow of RM79m, in contrast to the aforementioned profit of RM9.38m. We saw that FCF was RM10m a year ago though, so FITTERS Diversified Berhad has at least been able to generate positive FCF in the past. One positive for FITTERS Diversified Berhad shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. As a result, some shareholders may be looking for stronger cash conversion in the current year.

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

Our Take On FITTERS Diversified Berhad's Profit Performance

FITTERS Diversified 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 FITTERS Diversified Berhad's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. So while earnings quality is important, it's equally important to consider the risks facing FITTERS Diversified Berhad at this point in time. For example, FITTERS Diversified Berhad has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of FITTERS Diversified 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. 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.