Are Oceanbridge's (KOSDAQ:241790) Statutory Earnings A Good Guide To Its Underlying Profitability?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Oceanbridge (KOSDAQ:241790).

It's good to see that over the last twelve months Oceanbridge made a profit of ₩11.2b on revenue of ₩82.2b. In the chart below, you can see that its profit and revenue have both grown over the last three years, albeit not in the last year.

Check out our latest analysis for Oceanbridge

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 Oceanbridge 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 Oceanbridge.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Oceanbridge expanded the number of shares on issue by 6.2% over the last year. As a result, its net income is now split between a greater number of shares. 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. You can see a chart of Oceanbridge's EPS by clicking here.

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

As you can see above, Oceanbridge has been growing its net income over the last few years, with an annualized gain of 27% over three years. In contrast, earnings per share were actually down by 18% per year, in the exact same period. Net income was down 3.3% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 10%. 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.

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

Our Take On Oceanbridge's Profit Performance

Oceanbridge issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Oceanbridge's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Oceanbridge at this point in time. At Simply Wall St, we found 2 warning signs for Oceanbridge and we think they deserve your attention.

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