We Wouldn't Rely On Yuyu Pharma's (KRX:000220) Statutory Earnings As A Guide

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Yuyu Pharma (KRX:000220).

While Yuyu Pharma was able to generate revenue of ₩97.9b in the last twelve months, we think its profit result of ₩2.84b was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

Check out our latest analysis for Yuyu Pharma

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'll look at how Yuyu Pharma 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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Yuyu Pharma expanded the number of shares on issue by 26% 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. Check out Yuyu Pharma's historical EPS growth by clicking on this link.

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

Yuyu Pharma's net profit dropped by 54% per year over the last three years. Even looking at the last year, profit was still down 28%. Sadly, earnings per share fell further, down a full 28% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

If Yuyu Pharma'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.

Our Take On Yuyu Pharma's Profit Performance

Yuyu Pharma issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Yuyu Pharma's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Yuyu Pharma has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Yuyu Pharma'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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