Kyung Dong Navien (KRX:009450) Is Growing Earnings But Are They A Good Guide?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Kyung Dong Navien (KRX:009450).

We like the fact that Kyung Dong Navien made a profit of ₩38.7b on its revenue of ₩829.5b, in the last year. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for Kyung Dong Navien

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we'll look at how Kyung Dong Navien is impacting shareholders by issuing new shares. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kyung Dong Navien.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Kyung Dong Navien increased the number of shares on issue by 6.9% over the last twelve months by issuing new shares. 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 Kyung Dong Navien's EPS by clicking here.

How Is Dilution Impacting Kyung Dong Navien's Earnings Per Share? (EPS)

Kyung Dong Navien has improved its profit over the last three years, with an annualized gain of 20% in that time. And at a glance the 39% gain in profit over the last year impresses. On the other hand, earnings per share are only up 39% 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.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Kyung Dong Navien shareholders will want to see that EPS figure continue to increase. 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 Kyung Dong Navien's Profit Performance

Each Kyung Dong Navien share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Kyung Dong Navien's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 20% over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Kyung Dong Navien has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Kyung Dong Navien's 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. 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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