Earnings Troubles May Signal Larger Issues for Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE) Shareholders

Easy Lease Motor Cycle Rental P.S.C.'s (ADX:EASYLEASE) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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Zooming In On Easy Lease Motor Cycle Rental P.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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Easy Lease Motor Cycle Rental P.S.C has an accrual ratio of 0.26 for the year to March 2025. We can therefore deduce that its free cash flow fell well short of covering its statutory profit. Over the last year it actually had negative free cash flow of د.إ56m, in contrast to the aforementioned profit of د.إ28.9m. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of د.إ56m, this year, indicates high risk.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Easy Lease Motor Cycle Rental P.S.C.

Our Take On Easy Lease Motor Cycle Rental P.S.C's Profit Performance

Easy Lease Motor Cycle Rental P.S.C didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Therefore, it seems possible to us that Easy Lease Motor Cycle Rental P.S.C's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. If you want to do dive deeper into Easy Lease Motor Cycle Rental P.S.C, you'd also look into what risks it is currently facing. For instance, we've identified 5 warning signs for Easy Lease Motor Cycle Rental P.S.C (3 are potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Easy Lease Motor Cycle Rental P.S.C'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. 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.