Why Omnibridge Holdings' (HKG:8462) Earnings Are Better Than They Seem

The recent earnings posted by Omnibridge Holdings Limited (HKG:8462) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Our free stock report includes 3 warning signs investors should be aware of before investing in Omnibridge Holdings. Read for free now.

Zooming In On Omnibridge Holdings' 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. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. 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".

Omnibridge Holdings has an accrual ratio of -2.13 for the year to December 2024. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of S$5.2m during the period, dwarfing its reported profit of S$3.28m. Omnibridge Holdings' free cash flow improved over the last year, which is generally good to see. 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 Omnibridge Holdings

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

How Do Unusual Items Influence Profit?

Surprisingly, given Omnibridge Holdings' accrual ratio implied strong cash conversion, its paper profit was actually boosted by S$5.3m in unusual items. 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. Omnibridge Holdings had a rather significant contribution from unusual items relative to its profit to December 2024. 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 Omnibridge Holdings' Profit Performance

Omnibridge Holdings' 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 Omnibridge Holdings' profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Omnibridge Holdings, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for Omnibridge Holdings (2 don't sit too well with us!) that we believe deserve your full attention.

Our examination of Omnibridge Holdings has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.