We're Not So Sure You Should Rely on T7 Global Berhad's (KLSE:T7GLOBAL) Statutory Earnings

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether T7 Global Berhad's (KLSE:T7GLOBAL) statutory profits are a good guide to its underlying earnings.

While T7 Global Berhad was able to generate revenue of RM185.9m in the last twelve months, we think its profit result of RM10.4m was more important. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

See our latest analysis for T7 Global Berhad

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. In this article we'll look at how T7 Global Berhad 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 T7 Global Berhad.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, T7 Global Berhad issued 25% more new shares over the last year. That means its earnings are split among 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. Check out T7 Global Berhad's historical EPS growth by clicking on this link.

A Look At The Impact Of T7 Global Berhad's Dilution on Its Earnings Per Share (EPS).

T7 Global Berhad's net profit dropped by 3.4% per year over the last three years. On the bright side, in the last twelve months it grew profit by 226%. But EPS was less impressive, up only 226% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if T7 Global Berhad can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On T7 Global Berhad's Profit Performance

T7 Global Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that T7 Global Berhad's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. If you want to do dive deeper into T7 Global Berhad, you'd also look into what risks it is currently facing. While conducting our analysis, we found that T7 Global Berhad 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 T7 Global Berhad's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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