Should You Use Phoenix Mills' (NSE:PHOENIXLTD) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. This article will consider whether Phoenix Mills' (NSE:PHOENIXLTD) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Phoenix Mills made a profit of ₹602.3m on revenue of ₹11.6b. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Phoenix Mills

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we will consider how Phoenix Mills' decision to issue new shares in the company has impacted returns to shareholders. 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. Phoenix Mills expanded the number of shares on issue by 12% over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Phoenix Mills' EPS by clicking here.

How Is Dilution Impacting Phoenix Mills' Earnings Per Share? (EPS)

Unfortunately, Phoenix Mills' profit is down 61% per year over three years. Even looking at the last year, profit was still down 88%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 88% 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.

If Phoenix Mills' 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 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.

Our Take On Phoenix Mills' Profit Performance

Over the last year Phoenix Mills issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Phoenix Mills' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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 Phoenix Mills, you'd also look into what risks it is currently facing. Be aware that Phoenix Mills is showing 5 warning signs in our investment analysis and 1 of those doesn't sit too well with us...

This note has only looked at a single factor that sheds light on the nature of Phoenix Mills' profit. 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. 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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