Tire Company Debica's (WSE:DBC) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Tire Company Debica S.A.'s (WSE:DBC) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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Zooming In On Tire Company Debica'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. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2025, Tire Company Debica recorded an accrual ratio of 0.34. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. In the last twelve months it actually had negative free cash flow, with an outflow of zł84m despite its profit of zł133.1m, mentioned above. We saw that FCF was zł69m a year ago though, so Tire Company Debica has at least been able to generate positive FCF in the past. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

Check out our latest analysis for Tire Company Debica

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How Do Unusual Items Influence Profit?

Tire Company Debica's profit suffered from unusual items, which reduced profit by zł182m in the last twelve months. If this was a non-cash charge, it would have made the accrual ratio better, if cashflow had stayed strong, so it's not great to see in combination with an uninspiring accrual ratio. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Tire Company Debica took a rather significant hit from unusual items in the year to September 2025. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Tire Company Debica's Profit Performance

In conclusion, Tire Company Debica's accrual ratio suggests that its statutory earnings are not backed by cash flow, even though unusual items weighed on profit. After taking into account all these factors, we think that Tire Company Debica's statutory results are a decent reflection of its underlying earnings power. If you'd like to know more about Tire Company Debica as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Tire Company Debica (1 can't be ignored) you should be familiar with.

Our examination of Tire Company Debica has focussed on certain factors that can make its earnings look better than they are. 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.