Solar District Cooling Group Berhad (KLSE:SDCG) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.
KLSE:SDCG Earnings and Revenue History May 30th 2026 A Closer Look At Solar District Cooling Group Berhad’s Earnings
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). 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. You could think of the accrual ratio from cashflow as the ‘non-FCF profit ratio’.
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 having an accrual ratio above zero is of little concern, we do think it’s worth noting when a company has a relatively high accrual ratio. To quote a 2014 paper by Lewellen and Resutek, “firms with higher accruals tend to be less profitable in the future”.
For the year to March 2026, Solar District Cooling Group Berhad had an accrual ratio of 0.40. As a general rule, that bodes poorly for future profitability. And indeed, during the period the company didn’t produce any free cash flow whatsoever. Even though it reported a profit of RM4.87m, a look at free cash flow indicates it actually burnt through RM2.5m in the last year. It’s worth noting that Solar District Cooling Group Berhad generated positive FCF of RM2.6m a year ago, so at least they’ve done it in the past.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Solar District Cooling Group Berhad.
Our Take On Solar District Cooling Group Berhad’s Profit Performance
As we have made quite clear, we’re a bit worried that Solar District Cooling Group Berhad didn’t back up the last year’s profit with free cashflow. As a result, we think it may well be the case that Solar District Cooling Group Berhad’s underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 13% in the last year. Of course, we’ve only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Solar District Cooling Group Berhad, you’d also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we’ve spotted with Solar District Cooling Group Berhad (including 3 which can’t be ignored).
This note has only looked at a single factor that sheds light on the nature of Solar District Cooling Group 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. 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.
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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.