We Believe Tamilnadu Petroproducts' (NSE:TNPETRO) Earnings Are A Poor Guide For Its Profitability

Investors were disappointed with Tamilnadu Petroproducts Limited's (NSE:TNPETRO) recent earnings release. We did some analysis and believe that they might be concerned about some weak underlying factors.

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A Closer Look At Tamilnadu Petroproducts' 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. 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'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2025, Tamilnadu Petroproducts recorded an accrual ratio of 0.59. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. Over the last year it actually had negative free cash flow of ₹3.5b, in contrast to the aforementioned profit of ₹1.08b. We also note that Tamilnadu Petroproducts' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹3.5b. 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.

Check out our latest analysis for Tamilnadu Petroproducts

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

The Impact Of Unusual Items On Profit

The fact that the company had unusual items boosting profit by ₹108m, in the last year, probably goes some way to explain why its accrual ratio was so weak. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Tamilnadu Petroproducts' Profit Performance

Tamilnadu Petroproducts had a weak accrual ratio, but its profit did receive a boost from unusual items. For the reasons mentioned above, we think that a perfunctory glance at Tamilnadu Petroproducts' statutory profits might make it look better than it really is on an underlying level. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for Tamilnadu Petroproducts (2 make us uncomfortable) you should be familiar with.

Our examination of Tamilnadu Petroproducts 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. 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.