Take and Give. Needs' (TSE:4331) Anemic Earnings Might Be Worse Than You Think

Take and Give. Needs Co., Ltd's (TSE:4331) earnings announcement last week contained some soft numbers, disappointing investors. We did some digging and believe that things are better than they seem due to some encouraging factors.

See our latest analysis for Take and Give. Needs

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Take and Give. Needs expanded the number of shares on issue by 12% over the last year. As a result, its net income is now split between a greater number of shares. 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 Take and Give. Needs' historical EPS growth by clicking on this link.

How Is Dilution Impacting Take and Give. Needs' Earnings Per Share (EPS)?

Three years ago, Take and Give. Needs lost money. Even looking at the last year, profit was still down 53%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 58% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If Take and Give. Needs' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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?

Alongside that dilution, it's also important to note that Take and Give. Needs' profit suffered from unusual items, which reduced profit by JP¥468m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Take and Give. Needs to produce a higher profit next year, all else being equal.

Our Take On Take and Give. Needs' Profit Performance

Take and Give. Needs 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 unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Take and Give. Needs' profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Take and Give. Needs, you'd also look into what risks it is currently facing. To help with this, we've discovered 6 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Take and Give. Needs.

Our examination of Take and Give. Needs has focussed on certain factors that can make its earnings look better than they are. 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 with significant insider holdings to be useful.

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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.