Dubai Taxi Company P.J.S.C's (DFM:DTC) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for Dubai Taxi Company P.J.S.C.'s (DFM:DTC) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Dubai Taxi Company P.J.S.C

Zooming In On Dubai Taxi Company P.J.S.C'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. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the 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.

Dubai Taxi Company P.J.S.C has an accrual ratio of 1.92 for the year to December 2023. 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. In the last twelve months it actually had negative free cash flow, with an outflow of د.إ622m despite its profit of د.إ345.3m, mentioned above. We saw that FCF was د.إ173m a year ago though, so Dubai Taxi Company P.J.S.C has at least been able to generate positive FCF in the past.

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 Dubai Taxi Company P.J.S.C's Profit Performance

As we discussed above, we think Dubai Taxi Company P.J.S.C's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Dubai Taxi Company P.J.S.C's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 54% EPS growth in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Dubai Taxi Company P.J.S.C, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Dubai Taxi Company P.J.S.C you should know about.

Today we've zoomed in on a single data point to better understand the nature of Dubai Taxi Company P.J.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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.