Hygieia Group's (HKG:1650) Performance Is Even Better Than Its Earnings Suggest

Despite posting some strong earnings, the market for Hygieia Group Limited's (HKG:1650) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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Examining Cashflow Against Hygieia Group's Earnings

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. The ratio shows us how much a company's profit exceeds its FCF.

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. 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".

Hygieia Group has an accrual ratio of -0.39 for the year to June 2025. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of S$7.3m, well over the S$1.75m it reported in profit. Given that Hygieia Group had negative free cash flow in the prior corresponding period, the trailing twelve month resul of S$7.3m would seem to be a step in the right direction. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

See our latest analysis for Hygieia Group

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

How Do Unusual Items Influence Profit?

While the accrual ratio might bode well, we also note that Hygieia Group's profit was boosted by unusual items worth S$1.6m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Hygieia Group had a rather significant contribution from unusual items relative to its profit to June 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Hygieia Group's Profit Performance

Hygieia Group's profits got a boost from unusual items, which indicates they might not be sustained and yet its accrual ratio still indicated solid cash conversion, which is promising. Based on these factors, it's hard to tell if Hygieia Group's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Hygieia Group, you'd also look into what risks it is currently facing. To help with this, we've discovered 4 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Hygieia Group.

Our examination of Hygieia Group has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. 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.

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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.