We Think Gilat Telecom Global's (TLV:GLTL) Solid Earnings Are Understated

Investors signalled that they were pleased with Gilat Telecom Global Ltd's (TLV:GLTL) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

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A Closer Look At Gilat Telecom Global'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. 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'.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2025, Gilat Telecom Global recorded an accrual ratio of -0.83. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of US$16m during the period, dwarfing its reported profit of US$3.61m. Gilat Telecom Global's free cash flow improved over the last year, which is generally good to see. Unfortunately for shareholders, the company has also been issuing new shares, diluting their share of future earnings.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gilat Telecom Global.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Gilat Telecom Global issued 37% more new shares over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Gilat Telecom Global's EPS by clicking here.

How Is Dilution Impacting Gilat Telecom Global's Earnings Per Share (EPS)?

Gilat Telecom Global was losing money three years ago. The good news is that profit was up 57% in the last twelve months. On the other hand, earnings per share are only up 28% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Gilat Telecom Global can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Gilat Telecom Global's Profit Performance

In conclusion, Gilat Telecom Global has strong cashflow relative to earnings, which indicates good quality earnings, but the dilution means its earnings per share growth is weaker than its profit growth. After taking into account all these factors, we think that Gilat Telecom Global's statutory results are a decent reflection of its underlying earnings power. If you'd like to know more about Gilat Telecom Global as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Gilat Telecom Global (including 1 which shouldn't be ignored).

Our examination of Gilat Telecom Global has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.