Are DMSLtd's (KOSDAQ:068790) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether DMSLtd's (KOSDAQ:068790) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months DMSLtd made a profit of ₩16.1b on revenue of ₩223.4b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for DMSLtd

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we will consider how DMSLtd's decision to issue new shares in the company has impacted returns to shareholders. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of DMSLtd.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, DMSLtd issued 6.9% more new shares 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 DMSLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of DMSLtd's Dilution on Its Earnings Per Share (EPS).

DMSLtd's net profit dropped by 45% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 9.8%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 7.5% in the same period. 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 DMSLtd's 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 DMSLtd's Profit Performance

DMSLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that DMSLtd'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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 3 warning signs for DMSLtd you should know about.

This note has only looked at a single factor that sheds light on the nature of DMSLtd'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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