Should You Use Siemens Healthineers's (ETR:SHL) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Siemens Healthineers (ETR:SHL).

We like the fact that Siemens Healthineers made a profit of €1.41b on its revenue of €14.5b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

View our latest analysis for Siemens Healthineers

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we will consider how Siemens Healthineers' 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.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Siemens Healthineers expanded the number of shares on issue by 7.3% over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of Siemens Healthineers' EPS by clicking here.

How Is Dilution Impacting Siemens Healthineers' Earnings Per Share? (EPS)

Siemens Healthineers has improved its profit over the last three years, with an annualized gain of 2.3% in that time. Net profit actually dropped by 9.9% in the last year. But the EPS result was even worth, with the company recording a decline of 10%. 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 Siemens Healthineers' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On Siemens Healthineers' Profit Performance

Siemens Healthineers 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 Siemens Healthineers' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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'd like to know more about Siemens Healthineers as a business, it's important to be aware of any risks it's facing. For example - Siemens Healthineers has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Siemens Healthineers' 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 that insiders are buying to be useful.

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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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