We Think That There Are Some Issues For Etihad Atheeb Telecommunication (TADAWUL:7040) Beyond Its Promising Earnings

Etihad Atheeb Telecommunication Company's (TADAWUL:7040) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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Zooming In On Etihad Atheeb Telecommunication'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'.

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

For the year to June 2025, Etihad Atheeb Telecommunication had an accrual ratio of 0.21. Unfortunately, that means its free cash flow fell significantly short of its reported profits. To wit, it produced free cash flow of ر.س194m during the period, falling well short of its reported profit of ر.س234.6m. We note, however, that Etihad Atheeb Telecommunication grew its free cash flow over the last year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Etihad Atheeb Telecommunication.

Our Take On Etihad Atheeb Telecommunication's Profit Performance

Etihad Atheeb Telecommunication's accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Because of this, we think that it may be that Etihad Atheeb Telecommunication's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 33% in the last year. 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 want to do dive deeper into Etihad Atheeb Telecommunication, you'd also look into what risks it is currently facing. For example - Etihad Atheeb Telecommunication has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Etihad Atheeb Telecommunication'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.