Hi-Green Carbon's (NSE:HIGREEN) Shareholders May Want To Dig Deeper Than Statutory Profit

Hi-Green Carbon Limited's (NSE:HIGREEN) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

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Examining Cashflow Against Hi-Green Carbon'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. 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".

Over the twelve months to September 2025, Hi-Green Carbon recorded an accrual ratio of 0.36. As a general rule, that bodes poorly for future profitability. And indeed, during the period the company didn't produce any free cash flow whatsoever. In the last twelve months it actually had negative free cash flow, with an outflow of ₹362m despite its profit of ₹105.5m, mentioned above. We also note that Hi-Green Carbon's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹362m. Having said that, there is more to the story. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

See our latest analysis for Hi-Green Carbon

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hi-Green Carbon.

The Impact Of Unusual Items On Profit

The fact that the company had unusual items boosting profit by ₹13m, in the last year, probably goes some way to explain why its accrual ratio was so weak. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Hi-Green Carbon's Profit Performance

Summing up, Hi-Green Carbon received a nice boost to profit from unusual items, but could not match its paper profit with free cash flow. For the reasons mentioned above, we think that a perfunctory glance at Hi-Green Carbon's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Hi-Green Carbon as a business, it's important to be aware of any risks it's facing. Our analysis shows 4 warning signs for Hi-Green Carbon (1 can't be ignored!) and we strongly recommend you look at these before investing.

Our examination of Hi-Green Carbon has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.