We Think Al Majed for Oud's (TADAWUL:4165) Solid Earnings Are Understated

Al Majed for Oud Company's (TADAWUL:4165) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

View our latest analysis for Al Majed for Oud

Zooming In On Al Majed for Oud's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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'.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Al Majed for Oud has an accrual ratio of -0.13 for the year to December 2024. Therefore, its statutory earnings were quite a lot less than its free cashflow. In fact, it had free cash flow of ر.س221m in the last year, which was a lot more than its statutory profit of ر.س157.0m. Al Majed for Oud'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 Al Majed for Oud's Profit Performance

As we discussed above, Al Majed for Oud has perfectly satisfactory free cash flow relative to profit. Because of this, we think Al Majed for Oud's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 5.6% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 1 warning sign for Al Majed for Oud you should know about.

This note has only looked at a single factor that sheds light on the nature of Al Majed for Oud'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.