We Think You Should Be Aware Of Some Concerning Factors In Alkhorayef Water and Power Technologies' (TADAWUL:2081) Earnings

Alkhorayef Water and Power Technologies Company's (TADAWUL:2081) 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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Examining Cashflow Against Alkhorayef Water and Power Technologies' 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. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to September 2025, Alkhorayef Water and Power Technologies recorded an accrual ratio of 0.36. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, raising questions about how useful that profit figure really is. Over the last year it actually had negative free cash flow of ر.س192m, in contrast to the aforementioned profit of ر.س259.3m. It's worth noting that Alkhorayef Water and Power Technologies generated positive FCF of ر.س54m 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 Alkhorayef Water and Power Technologies' Profit Performance

As we discussed above, we think Alkhorayef Water and Power Technologies' earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that Alkhorayef Water and Power Technologies' underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate 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 Alkhorayef Water and Power Technologies at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Alkhorayef Water and Power Technologies.

This note has only looked at a single factor that sheds light on the nature of Alkhorayef Water and Power Technologies' profit. But there are plenty of other ways to inform your opinion of a company. 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.