Fujairah Building Industries P.J.S.C's (ADX:FBI) Strong Earnings Are Of Good Quality

Fujairah Building Industries P.J.S.C.'s (ADX:FBI) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

See our latest analysis for Fujairah Building Industries P.J.S.C

A Closer Look At Fujairah Building Industries P.J.S.C'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. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Fujairah Building Industries P.J.S.C has an accrual ratio of -0.15 for the year to September 2024. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of د.إ55m during the period, dwarfing its reported profit of د.إ22.7m. Fujairah Building Industries P.J.S.C's free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Fujairah Building Industries P.J.S.C.

Our Take On Fujairah Building Industries P.J.S.C's Profit Performance

Fujairah Building Industries P.J.S.C's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Fujairah Building Industries P.J.S.C's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Fujairah Building Industries P.J.S.C has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Fujairah Building Industries P.J.S.C's profit. 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.