We're Not So Sure You Should Rely on Monash IVF Group's (ASX:MVF) Statutory Earnings

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Monash IVF Group (ASX:MVF).

While Monash IVF Group was able to generate revenue of AU$145.4m in the last twelve months, we think its profit result of AU$11.7m was more important. The chart below shows that both revenue and profit have declined over the last three years.

View our latest analysis for Monash IVF Group

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 Monash IVF Group's 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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Monash IVF Group expanded the number of shares on issue by 65% over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Monash IVF Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting Monash IVF Group's Earnings Per Share? (EPS)

Monash IVF Group's net profit dropped by 60% per year over the last three years. Even looking at the last year, profit was still down 41%. Sadly, earnings per share fell further, down a full 46% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Monash IVF Group's 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 Monash IVF Group's Profit Performance

Over the last year Monash IVF Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. For this reason, we think that Monash IVF Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Monash IVF Group you should be mindful of and 1 of these can't be ignored.

This note has only looked at a single factor that sheds light on the nature of Monash IVF Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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