Some May Be Optimistic About Almunajem Foods' (TADAWUL:4162) Earnings

Soft earnings didn't appear to concern Almunajem Foods Company's (TADAWUL:4162) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Almunajem Foods

Examining Cashflow Against Almunajem Foods' 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. 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. 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 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.

Almunajem Foods has an accrual ratio of -0.16 for the year to December 2023. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of ر.س398m in the last year, which was a lot more than its statutory profit of ر.س282.2m. Almunajem Foods' 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 Almunajem Foods' Profit Performance

Almunajem Foods' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Almunajem Foods' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 9.8% annually, over the last three years. 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. If you want to do dive deeper into Almunajem Foods, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Almunajem Foods you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Almunajem Foods' 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 that insiders are buying 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.