Here's Why We Don't Think Perusahaan Sadur Timah Malaysia (Perstima) Berhad's (KLSE:PERSTIM) Statutory Earnings Reflect Its Underlying Earnings Potential

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Perusahaan Sadur Timah Malaysia (Perstima) Berhad (KLSE:PERSTIM).

It's good to see that over the last twelve months Perusahaan Sadur Timah Malaysia (Perstima) Berhad made a profit of RM36.6m on revenue of RM818.4m. The chart below shows how profit is flat over the last three years, even though revenue has declined.

Check out our latest analysis for Perusahaan Sadur Timah Malaysia (Perstima) Berhad

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we will consider how Perusahaan Sadur Timah Malaysia (Perstima) Berhad'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 Perusahaan Sadur Timah Malaysia (Perstima) Berhad.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Perusahaan Sadur Timah Malaysia (Perstima) Berhad increased the number of shares on issue by 30% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Perusahaan Sadur Timah Malaysia (Perstima) Berhad's historical EPS growth by clicking on this link.

How Is Dilution Impacting Perusahaan Sadur Timah Malaysia (Perstima) Berhad's Earnings Per Share? (EPS)

You can see above that Perusahaan Sadur Timah Malaysia (Perstima) Berhad's profit is about the same as it was three years back. Similarly, profit was pretty flat over the last year. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Perusahaan Sadur Timah Malaysia (Perstima) Berhad shareholders will want to see that EPS figure continue to increase. 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 Perusahaan Sadur Timah Malaysia (Perstima) Berhad's Profit Performance

Each Perusahaan Sadur Timah Malaysia (Perstima) Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Perusahaan Sadur Timah Malaysia (Perstima) Berhad's statutory profits are better than its underlying earnings power. And we are pleased to note that EPS is at least heading in the right direction in the alst twelve months. 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. 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. To help with this, we've discovered 3 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in Perusahaan Sadur Timah Malaysia (Perstima) Berhad.

This note has only looked at a single factor that sheds light on the nature of Perusahaan Sadur Timah Malaysia (Perstima) Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

If you decide to trade Perusahaan Sadur Timah Malaysia (Perstima) Berhad, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.