EBOS Group's (NZSE:EBO) Weak Earnings May Only Reveal A Part Of The Whole Picture

Last week's earnings announcement from EBOS Group Limited (NZSE:EBO) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, EBOS Group issued 5.1% more new shares 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 EBOS Group's EPS by clicking here.

A Look At The Impact Of EBOS Group's Dilution On Its Earnings Per Share (EPS)

EBOS Group has improved its profit over the last three years, with an annualized gain of 6.2% in that time. But on the other hand, earnings per share actually fell by 4.2% per year. Net profit actually dropped by 21% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 22%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If EBOS Group'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 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.

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.

Our Take On EBOS Group's Profit Performance

Over the last year EBOS Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that EBOS Group'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 EBOS Group at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of EBOS Group.

Today we've zoomed in on a single data point to better understand the nature of EBOS Group'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 with significant insider holdings to be useful.

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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.