Nice One Beauty Digital Marketing's (TADAWUL:4193) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Investors were disappointed by Nice One Beauty Digital Marketing Company's (TADAWUL:4193 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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Examining Cashflow Against Nice One Beauty Digital Marketing'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). To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Nice One Beauty Digital Marketing has an accrual ratio of 0.22 for the year to September 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. In the last twelve months it actually had negative free cash flow, with an outflow of ر.س22m despite its profit of ر.س34.6m, mentioned above. It's worth noting that Nice One Beauty Digital Marketing generated positive FCF of ر.س694k a year ago, so at least they've done it in the past.

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 Nice One Beauty Digital Marketing's Profit Performance

Nice One Beauty Digital Marketing didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Nice One Beauty Digital Marketing's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 57% per annum growth in EPS for the last three. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Nice One Beauty Digital Marketing you should be mindful of and 1 of these doesn't sit too well with us.

Today we've zoomed in on a single data point to better understand the nature of Nice One Beauty Digital Marketing'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.