Exploring Deeper Challenges Faced by XOX Technology Berhad Beyond Weak Earnings

Investors were disappointed by XOX Technology Berhad’s (KLSE:XOXTECH ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part – they are all under $10bn in marketcap – there is still time to get in early.

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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.

Therefore, it’s actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. That’s because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to September 2025, XOX Technology Berhad had an accrual ratio of 0.28. 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. Even though it reported a profit of RM6.42m, a look at free cash flow indicates it actually burnt through RM2.1m in the last year. We saw that FCF was RM6.4m a year ago though, so XOX Technology Berhad has at least been able to generate positive FCF in the past.

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

XOX Technology Berhad’s accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Therefore, it seems possible to us that XOX Technology Berhad’s true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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’d like to know more about XOX Technology Berhad as a business, it’s important to be aware of any risks it’s facing. For example, we’ve discovered 3 warning signs that you should run your eye over to get a better picture of XOX Technology Berhad.

Today we’ve zoomed in on a single data point to better understand the nature of XOX 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. 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.

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.