We Think Tiv Taam Holdings 1's (TLV:TTAM) Healthy Earnings Might Be Conservative

The stock was sluggish on the back of Tiv Taam Holdings 1 Ltd.'s (TLV:TTAM) recent earnings report. Along with the solid headline numbers, we think that investors have some reasons for optimism.

Check out our latest analysis for Tiv Taam Holdings 1

Zooming In On Tiv Taam Holdings 1'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. 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.

Tiv Taam Holdings 1 has an accrual ratio of -0.27 for the year to September 2024. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of ₪132m during the period, dwarfing its reported profit of ₪48.7m. Tiv Taam Holdings 1'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 Tiv Taam Holdings 1.

Our Take On Tiv Taam Holdings 1's Profit Performance

Happily for shareholders, Tiv Taam Holdings 1 produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Tiv Taam Holdings 1's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Tiv Taam Holdings 1's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Tiv Taam Holdings 1'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 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.