Weak Statutory Earnings May Not Tell The Whole Story For BalnibarbiLtd (TSE:3418)

Balnibarbi Co.,Ltd.'s (TSE:3418) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. BalnibarbiLtd expanded the number of shares on issue by 22% 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 BalnibarbiLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting BalnibarbiLtd's Earnings Per Share (EPS)?

As you can see above, BalnibarbiLtd has been growing its net income over the last few years, with an annualized gain of 3,240% over three years. In comparison, earnings per share only gained 2,948% over the same period. Net income was down 7.2% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 12%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If BalnibarbiLtd's 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the JP¥86m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If BalnibarbiLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On BalnibarbiLtd's Profit Performance

BalnibarbiLtd suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, we think it's very unlikely that BalnibarbiLtd's statutory profits make it seem much weaker than it is. If you want to do dive deeper into BalnibarbiLtd, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for BalnibarbiLtd you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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.