Are Prestige Estates Projects's (NSE:PRESTIGE) Statutory Earnings A Good Guide To Its Underlying Profitability?

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. This article will consider whether Prestige Estates Projects' (NSE:PRESTIGE) statutory profits are a good guide to its underlying earnings.

We like the fact that Prestige Estates Projects made a profit of ₹2.38b on its revenue of ₹78.1b, in the last year. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for Prestige Estates Projects

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 Prestige Estates Projects 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. As it happens, Prestige Estates Projects issued 6.9% more new shares 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. Check out Prestige Estates Projects' historical EPS growth by clicking on this link.

A Look At The Impact Of Prestige Estates Projects' Dilution on Its Earnings Per Share (EPS).

Prestige Estates Projects' net profit dropped by 29% per year over the last three years. Even looking at the last year, profit was still down 44%. Sadly, earnings per share fell further, down a full 46% in that time. 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 Prestige Estates Projects' 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.

Our Take On Prestige Estates Projects' Profit Performance

Over the last year Prestige Estates Projects issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Prestige Estates Projects' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Prestige Estates Projects at this point in time. To that end, you should learn about the 4 warning signs we've spotted with Prestige Estates Projects (including 1 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Prestige Estates Projects' profit. 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. 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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