By Simply Wall St
Publication Date: 2025-11-27 18:43:00
The recent earnings posted by NVIDIA Corporation (NASDAQ:NVDA) were solid, but the stock didn’t move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.
Many investors haven’t heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company’s profit is backed up by free cash flow (FCF) during a given period. 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’.
That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While having an accrual ratio above zero is of little concern, we do think it’s worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
NVIDIA has an accrual ratio of 0.43 for the year to October 2025. Ergo, its free cash flow is significantly weaker than its profit. As a general rule, that bodes poorly for future profitability. To wit, it…