Solid Earnings Reflect Tiv Taam Holdings 1's (TLV:TTAM) Strength As A Business

Tiv Taam Holdings 1 Ltd.'s (TLV:TTAM) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

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A Closer Look At Tiv Taam Holdings 1's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. 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 June 2025, Tiv Taam Holdings 1 had an accrual ratio of -0.14. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of ₪105m during the period, dwarfing its reported profit of ₪62.0m. Tiv Taam Holdings 1's free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tiv Taam Holdings 1.

Our Take On Tiv Taam Holdings 1's Profit Performance

Tiv Taam Holdings 1's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that Tiv Taam Holdings 1's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 40% 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. So while earnings quality is important, it's equally important to consider the risks facing Tiv Taam Holdings 1 at this point in time. Every company has risks, and we've spotted 1 warning sign for Tiv Taam Holdings 1 you should know about.

This note has only looked at a single factor that sheds light on the nature of Tiv Taam Holdings 1's profit. But there are plenty of other ways to inform your opinion of a company. 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.