Soft earnings didn’t appear to concern Hibiscus Petroleum Berhad’s (KLSE:HIBISCS) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.
KLSE:HIBISCS Earnings and Revenue History May 30th 2025
One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company’s average operating assets over that period. This ratio tells us how much of a company’s profit is not backed by free cashflow.
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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
For the year to March 2025, Hibiscus Petroleum Berhad had an accrual ratio of -0.33. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of RM1.0b, well over the RM151.6m it reported in profit. Hibiscus Petroleum Berhad’s free cash flow improved over the last year, which is generally good to see.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
As we discussed above, Hibiscus Petroleum Berhad’s accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Hibiscus Petroleum Berhad’s statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 Hibiscus Petroleum Berhad as a business, it’s important to be aware of any risks it’s facing. While conducting our analysis, we found that Hibiscus Petroleum Berhad has 2 warning signs and it would be unwise to ignore these bad boys.
Story Continues