Ventura Offshore Holding's (OB:VTURA) Shareholders May Want To Dig Deeper Than Statutory Profit

Ventura Offshore Holding Ltd.'s (OB:VTURA) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Our free stock report includes 2 warning signs investors should be aware of before investing in Ventura Offshore Holding. Read for free now.

A Closer Look At Ventura Offshore Holding's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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.

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 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. 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 December 2024, Ventura Offshore Holding recorded an accrual ratio of 0.83. 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. Even though it reported a profit of US$69.2m, a look at free cash flow indicates it actually burnt through US$103m in the last year. As it happens we don't have the data on what Ventura Offshore Holding produced by way of free cashflow, the year before, which is a pity.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Ventura Offshore Holding's Profit Performance

As we discussed above, we think Ventura Offshore Holding's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Ventura Offshore Holding's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Ventura Offshore Holding, you'd also look into what risks it is currently facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Ventura Offshore Holding.

This note has only looked at a single factor that sheds light on the nature of Ventura Offshore Holding's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.