Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) Soft Earnings Don't Show The Whole Picture

The market for The Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Power and Water Utility Company for Jubail and Yanbu

A Closer Look At Power and Water Utility Company for Jubail and Yanbu's 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. 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.

Power and Water Utility Company for Jubail and Yanbu has an accrual ratio of -0.18 for the year to December 2024. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of ر.س1.8b in the last year, which was a lot more than its statutory profit of ر.س17.2m. Power and Water Utility Company for Jubail and Yanbu'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 Power and Water Utility Company for Jubail and Yanbu's Profit Performance

Happily for shareholders, Power and Water Utility Company for Jubail and Yanbu produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Power and Water Utility Company for Jubail and Yanbu's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Power and Water Utility Company for Jubail and Yanbu at this point in time. To that end, you should learn about the 4 warning signs we've spotted with Power and Water Utility Company for Jubail and Yanbu (including 2 which are concerning).

This note has only looked at a single factor that sheds light on the nature of Power and Water Utility Company for Jubail and Yanbu's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.