Translation: Non-Cash Provisions = مخصصات غير نقدية (or non-cash burdens).

Simplified Definition: It is an accounting procedure that reduces "book profits" in the income statement in preparation for a potential loss or to record a decline in the value of a specific asset, but without a single riyal actually leaving the company's bank account. In other words, it is a "paper loss" aimed at presenting the company's financial position more realistically, and it is used to clean the books of distressed assets or investments.

How is it calculated? It is not calculated using a fixed mathematical formula, but rather estimated based on accounting standards and the management and auditors' assessment of the current fair value of assets compared to their historical cost.

Example (SABIC): If "SABIC" has assets or factories recorded in its books at a value of one billion riyals, but due to weak global demand or operational challenges, their fair value has dropped to 700 million riyals. SABIC will record an "impairment provision" of 300 million riyals. This figure will appear as a loss in the income statement and reduce its profits for that year, but SABIC's cash balance in the bank will not decrease by a single riyal due to this action.

What does it mean for you?

  • Differentiating between book profit and cash flow: Losses resulting from these provisions do not necessarily mean that the company is bleeding financial liquidity; a company may record significant book losses while its operational activities continue to generate real cash.
  • Assessing "earnings quality": When a company's losses suddenly shrink (as happened with SABIC's results in the first half of 2026) simply because it stopped recording these exceptional provisions, this is considered a low-quality accounting improvement and does not necessarily reflect an actual increase in sales or an improvement in the company's operating margins.
  • Cleaning the balance sheet: The management's decision to record provisions at a certain period reflects transparency and acknowledgment of reality, serving as a removal of accounting burdens that paves the way for a cleaner financial start once the economic cycle improves.

Common Question: If the company did not lose any actual cash, why does it force itself to record these provisions and scare investors by recording losses?

Answer: Because the essence of accounting is transparency and caution. If one of SABIC's assets or factories loses a significant part of its value and management ignores that, it is artificially inflating the size of its assets in a misleading manner. Recording provisions ensures that investors are given a true picture of the company's fair value today, just like someone who owns a property that has decreased in market price; they cannot continue to calculate their net worth based on the old purchase price while ignoring reality.