We're Not Counting On Maman-Cargo Terminals & Handling (TLV:MMAN) To Sustain Its Statutory Profitability

As a general rule, we think profitable companies are less risky than companies that lose money. 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 Maman-Cargo Terminals & Handling (TLV:MMAN).

It's good to see that over the last twelve months Maman-Cargo Terminals & Handling made a profit of ₪17.9m on revenue of ₪846.0m. Below, you can see that both its revenue and its profit have fallen over the last three years.

Check out our latest analysis for Maman-Cargo Terminals & Handling

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we'll look at how Maman-Cargo Terminals & Handling is impacting shareholders by issuing new shares, as well as how unusual items have affected the income line. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Maman-Cargo Terminals & Handling.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Maman-Cargo Terminals & Handling expanded the number of shares on issue by 13% over the last year. 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 Maman-Cargo Terminals & Handling's EPS by clicking here.

A Look At The Impact Of Maman-Cargo Terminals & Handling's Dilution on Its Earnings Per Share (EPS).

Maman-Cargo Terminals & Handling's net profit dropped by 12% per year over the last three years. Even looking at the last year, profit was still down 17%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 22% in the same period. 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 Maman-Cargo Terminals & Handling's 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Maman-Cargo Terminals & Handling's profit was boosted by unusual items worth ₪5.7m in the last twelve months. 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. Which is hardly surprising, given the name. If Maman-Cargo Terminals & Handling doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Maman-Cargo Terminals & Handling's Profit Performance

In its last report Maman-Cargo Terminals & Handling benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Maman-Cargo Terminals & Handling's profits probably give an overly generous impression of its sustainable level of profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 5 warning signs for Maman-Cargo Terminals & Handling (2 are concerning!) and we strongly recommend you look at these before investing.

Our examination of Maman-Cargo Terminals & Handling 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. 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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