Does BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's (BVMF:AGRO3) Statutory Profit Adequately Reflect Its Underlying Profit?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3).

It's good to see that over the last twelve months BrasilAgro - Companhia Brasileira de Propriedades Agrícolas made a profit of R$122.6m on revenue of R$537.6m. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

See our latest analysis for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. In this article we will consider how BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' decision to issue new shares in the company has impacted returns to shareholders. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas issued 10% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' historical EPS growth by clicking on this link.

A Look At The Impact Of BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' Dilution on Its Earnings Per Share (EPS).

Three years ago, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas lost money. And even focusing only on the last twelve months, we see profit is down 32%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 40% in the same period. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' earnings per share can increase, then the share price should too. 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 BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' Profit Performance

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 4 warning signs with BrasilAgro - Companhia Brasileira de Propriedades Agrícolas, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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