There Are Some Reasons To Suggest That Israel Canada (T.R)'s (TLV:ISCN) Earnings Are A Poor Reflection Of Profitability

Shareholders didn't seem to be thrilled with Israel Canada (T.R) Ltd's (TLV:ISCN) recent earnings report, despite healthy profit numbers. Our analysis has found some concerning factors which weaken the profit's foundation.

Check out our latest analysis for Israel Canada (T.R)

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Israel Canada (T.R) issued 6.6% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Israel Canada (T.R)'s historical EPS growth by clicking on this link.

A Look At The Impact Of Israel Canada (T.R)'s Dilution On Its Earnings Per Share (EPS)

We don't have any data on the company's profits from three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Israel Canada (T.R)'s 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Israel Canada (T.R).

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Israel Canada (T.R)'s net profit by ₪91m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Israel Canada (T.R) had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Israel Canada (T.R)'s Profit Performance

To sum it all up, Israel Canada (T.R) got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Israel Canada (T.R)'s profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Israel Canada (T.R), you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Israel Canada (T.R) (2 are concerning!) that we believe deserve your full attention.

Our examination of Israel Canada (T.R) 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 are plenty of other ways to inform your opinion of a company. 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 with high insider ownership.

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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.