Shareholders Can Be Confident That G1 Secure Solutions' (TLV:GOSS) Earnings Are High Quality
The subdued stock price reaction suggests that G1 Secure Solutions Ltd's (TLV:GOSS) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.
A Closer Look At G1 Secure Solutions' Earnings
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. 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'.
Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
G1 Secure Solutions has an accrual ratio of -0.14 for the year to September 2025. Therefore, its statutory earnings were quite a lot less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of ₪62m, well over the ₪33.1m it reported in profit. G1 Secure Solutions' free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of G1 Secure Solutions.
Our Take On G1 Secure Solutions' Profit Performance
As we discussed above, G1 Secure Solutions has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that G1 Secure Solutions' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 28% per year over the last three years. 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. If you want to do dive deeper into G1 Secure Solutions, you'd also look into what risks it is currently facing. When we did our research, we found 2 warning signs for G1 Secure Solutions (1 doesn't sit too well with us!) that we believe deserve your full attention.
This note has only looked at a single factor that sheds light on the nature of G1 Secure Solutions' 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.