There May Be Reason For Hope In BinDawood Holding's (TADAWUL:4161) Disappointing Earnings

The market for BinDawood Holding Company's (TADAWUL:4161) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

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Zooming In On 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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

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 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 -0.16 for the year to March 2025. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of ر.س593m during the period, dwarfing its reported profit of ر.س277.3m. BinDawood Holding did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie.

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

As we discussed above, BinDawood Holding has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that BinDawood Holding's statutory profit actually understates its earnings potential! And the EPS is up 17% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing BinDawood Holding at this point in time. Case in point: We've spotted 2 warning signs for BinDawood Holding you should be aware of.

This note has only looked at a single factor that sheds light on the nature of BinDawood Holding'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.