Impressive Earnings May Not Tell The Whole Story For Elinoil Hellenic Petroleum (ATH:ELIN)

Despite posting some strong earnings, the market for Elinoil Hellenic Petroleum Company S.A.'s (ATH:ELIN) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Our free stock report includes 4 warning signs investors should be aware of before investing in Elinoil Hellenic Petroleum. Read for free now.

A Closer Look At Elinoil Hellenic Petroleum'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. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Elinoil Hellenic Petroleum has an accrual ratio of 0.22 for the year to December 2024. We can therefore deduce that its free cash flow fell well short of covering its statutory profit. In the last twelve months it actually had negative free cash flow, with an outflow of €29m despite its profit of €9.85m, mentioned above. We saw that FCF was €45m a year ago though, so Elinoil Hellenic Petroleum has at least been able to generate positive FCF in the past. One positive for Elinoil Hellenic Petroleum 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 Elinoil Hellenic Petroleum.

Our Take On Elinoil Hellenic Petroleum's Profit Performance

Elinoil Hellenic Petroleum didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Elinoil Hellenic Petroleum's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you want to do dive deeper into Elinoil Hellenic Petroleum, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 4 warning signs for Elinoil Hellenic Petroleum (of which 2 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Elinoil Hellenic Petroleum's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.