BinDawood Holding's (TADAWUL:4161) Performance Is Even Better Than Its Earnings Suggest

The subdued stock price reaction suggests that BinDawood Holding Company's (TADAWUL:4161) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for BinDawood Holding

A Closer Look At BinDawood Holding'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. 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. 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.

BinDawood Holding has an accrual ratio of -0.45 for the year to September 2024. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of ر.س706m in the last year, which was a lot more than its statutory profit of ر.س286.4m. BinDawood Holding's free cash flow improved over the last year, which is generally good to see.

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 BinDawood Holding's Profit Performance

Happily for shareholders, BinDawood Holding produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think BinDawood Holding's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 33% over the last twelve months. 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'd like to know more about BinDawood Holding as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for BinDawood Holding and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of BinDawood Holding'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.