Statutory Profit Doesn't Reflect How Good Hepsor's (TAL:HPR1T) Earnings Are

The subdued stock price reaction suggests that Hepsor AS' (TAL:HPR1T) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

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Examining Cashflow Against Hepsor'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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. 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 September 2025, Hepsor had an accrual ratio of -0.26. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of €20m, well over the €1.52m it reported in profit. Given that Hepsor had negative free cash flow in the prior corresponding period, the trailing twelve month resul of €20m would seem to be a step in the right direction.

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

Our Take On Hepsor's Profit Performance

Happily for shareholders, Hepsor produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Hepsor's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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'd like to know more about Hepsor as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for Hepsor (2 are significant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Hepsor'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.