Are Linedata Services's (EPA:LIN) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Linedata Services (EPA:LIN).

We like the fact that Linedata Services made a profit of €16.8m on its revenue of €163.3m, in the last year. The chart below shows how profit is flat over the last three years, even though revenue has declined.

See our latest analysis for Linedata Services

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'll look at how Linedata Services is impacting shareholders by issuing new shares. 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. In fact, Linedata Services increased the number of shares on issue by 7.7% 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. Check out Linedata Services' historical EPS growth by clicking on this link.

How Is Dilution Impacting Linedata Services' Earnings Per Share? (EPS)

You can see above that Linedata Services' profit is about the same as it was three years back. Meanwhile, earnings per share were actually down 14%, over the last twelve months.In comparison, EPS was down 14%, sending a rather more concerning message. 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.

If Linedata Services' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Linedata Services' Profit Performance

Linedata Services 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 Linedata Services' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 9.5% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Linedata Services, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Linedata Services you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Linedata Services' 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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