There May Be Some Bright Spots In Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) Earnings

The market for Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Abu Dhabi National Oil Company for Distribution PJSC

Zooming In On Abu Dhabi National Oil Company for Distribution PJSC'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. 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.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to December 2023, Abu Dhabi National Oil Company for Distribution PJSC had an accrual ratio of -0.24. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of د.إ4.1b during the period, dwarfing its reported profit of د.إ2.60b. Abu Dhabi National Oil Company for Distribution PJSC's free cash flow improved over the last year, which is generally good to see.

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 Abu Dhabi National Oil Company for Distribution PJSC's Profit Performance

Happily for shareholders, Abu Dhabi National Oil Company for Distribution PJSC produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Abu Dhabi National Oil Company for Distribution PJSC's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at 8.6% per year over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 2 warning signs for Abu Dhabi National Oil Company for Distribution PJSC you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Abu Dhabi National Oil Company for Distribution PJSC's profit. 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 that insiders are buying 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.