Statutory Earnings May Not Be The Best Way To Understand E.S. Australia Israel Holdings' (TLV:AUIS) True Position

The latest earnings release from E.S. Australia Israel Holdings Ltd (TLV:AUIS ) disappointed investors. We did some digging and found some underlying numbers that are worrying.

Check out our latest analysis for E.S. Australia Israel Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, E.S. Australia Israel Holdings increased the number of shares on issue by 59% over the last twelve months by issuing new shares. That means its earnings are split among 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 E.S. Australia Israel Holdings' historical EPS growth by clicking on this link.

A Look At The Impact Of E.S. Australia Israel Holdings' Dilution On Its Earnings Per Share (EPS)

We don't have any data on the company's profits from three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if E.S. Australia Israel Holdings' 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of E.S. Australia Israel Holdings.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted E.S. Australia Israel Holdings' net profit by ₪11m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. E.S. Australia Israel Holdings had a rather significant contribution from unusual items relative to its profit to June 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On E.S. Australia Israel Holdings' Profit Performance

To sum it all up, E.S. Australia Israel Holdings got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. On reflection, the above-mentioned factors give us the strong impression that E.S. Australia Israel Holdings'underlying earnings power is not as good as it might seem, based on the statutory profit numbers. So while earnings quality is important, it's equally important to consider the risks facing E.S. Australia Israel Holdings at this point in time. Be aware that E.S. Australia Israel Holdings is showing 5 warning signs in our investment analysis and 2 of those are concerning...

Our examination of E.S. Australia Israel Holdings has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.