There May Be Reason For Hope In Malayan Flour Mills Berhad's (KLSE:MFLOUR) Disappointing Earnings

Malayan Flour Mills Berhad's (KLSE:MFLOUR) earnings announcement last week didn't impress shareholders. However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

See our latest analysis for Malayan Flour Mills Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Malayan Flour Mills Berhad expanded the number of shares on issue by 21% over the last year. That means its earnings are split among a greater number of shares. 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 Malayan Flour Mills Berhad's EPS by clicking here.

How Is Dilution Impacting Malayan Flour Mills Berhad's Earnings Per Share (EPS)?

Unfortunately, Malayan Flour Mills Berhad's profit is down 76% per year over three years. Even looking at the last year, profit was still down 69%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 73% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Malayan Flour Mills Berhad'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.

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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the RM71m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Malayan Flour Mills Berhad doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Malayan Flour Mills Berhad's Profit Performance

To sum it all up, Malayan Flour Mills Berhad took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Considering the aforementioned, we think that Malayan Flour Mills Berhad's profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. If you'd like to know more about Malayan Flour Mills Berhad as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 4 warning signs for Malayan Flour Mills Berhad you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.