There May Be Some Bright Spots In Scandinavian Investment Group's (CPH:SIG) Earnings

Shareholders appeared unconcerned with Scandinavian Investment Group A/S' (CPH:SIG) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Scandinavian Investment Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Scandinavian Investment Group increased the number of shares on issue by 5.3% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Scandinavian Investment Group's EPS by clicking here.

How Is Dilution Impacting Scandinavian Investment Group's Earnings Per Share (EPS)?

Scandinavian Investment Group's net profit dropped by 57% per year over the last three years. Even looking at the last year, profit was still down 61%. Sadly, earnings per share fell further, down a full 60% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Scandinavian Investment Group's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Scandinavian Investment Group.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the kr.13m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to December 2023, Scandinavian Investment Group had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Scandinavian Investment Group's Profit Performance

Scandinavian Investment Group suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Considering all the aforementioned, we'd venture that Scandinavian Investment Group's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you want to do dive deeper into Scandinavian Investment Group, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for Scandinavian Investment Group you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.