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We Think That There Are Some Issues For Cohen Development Gas & Oil (TLV:CDEV) Beyond Its Promising Earnings

Simply Wall St · 2d ago

The recent earnings posted by Cohen Development Gas & Oil Ltd. (TLV:CDEV) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

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earnings-and-revenue-history
TASE:CDEV Earnings and Revenue History December 6th 2025

A Closer Look At Cohen Development Gas & Oil's 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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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.

Cohen Development Gas & Oil has an accrual ratio of 0.41 for the year to September 2025. Ergo, its free cash flow is significantly weaker than its profit. As a general rule, that bodes poorly for future profitability. In fact, it had free cash flow of US$19m in the last year, which was a lot less than its statutory profit of US$30.7m. At this point we should mention that Cohen Development Gas & Oil did manage to increase its free cash flow in the last twelve months

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Cohen Development Gas & Oil.

Our Take On Cohen Development Gas & Oil's Profit Performance

As we have made quite clear, we're a bit worried that Cohen Development Gas & Oil didn't back up the last year's profit with free cashflow. For this reason, we think that Cohen Development Gas & Oil's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 2 warning signs for Cohen Development Gas & Oil (1 shouldn't be ignored!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Cohen Development Gas & Oil's profit. 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.