Are Dayang Enterprise Holdings Bhd's (KLSE:DAYANG) Statutory Earnings A Good Guide To Its Underlying Profitability?

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Dayang Enterprise Holdings Bhd (KLSE:DAYANG).

While Dayang Enterprise Holdings Bhd was able to generate revenue of RM858.2m in the last twelve months, we think its profit result of RM117.3m was more important. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

See our latest analysis for Dayang Enterprise Holdings Bhd

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 Dayang Enterprise Holdings Bhd 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. As it happens, Dayang Enterprise Holdings Bhd issued 10.0% more new shares over the last year. 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 Dayang Enterprise Holdings Bhd's EPS by clicking here.

How Is Dilution Impacting Dayang Enterprise Holdings Bhd's Earnings Per Share? (EPS)

Three years ago, Dayang Enterprise Holdings Bhd lost money. And even focusing only on the last twelve months, we see profit is down 53%. Sadly, earnings per share fell further, down a full 57% 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.

In the long term, if Dayang Enterprise Holdings Bhd'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 Dayang Enterprise Holdings Bhd's Profit Performance

Over the last year Dayang Enterprise Holdings Bhd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Dayang Enterprise Holdings Bhd'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. 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. So while earnings quality is important, it's equally important to consider the risks facing Dayang Enterprise Holdings Bhd at this point in time. While conducting our analysis, we found that Dayang Enterprise Holdings Bhd has 4 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Dayang Enterprise Holdings Bhd's profit. But there are plenty of other ways to inform your opinion of a company. 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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