Are Auckland International Airport's (NZSE:AIA) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Auckland International Airport (NZSE:AIA).

While Auckland International Airport was able to generate revenue of NZ$557.6m in the last twelve months, we think its profit result of NZ$193.9m was more important. The chart below shows that both revenue and profit have declined over the last three years.

View our latest analysis for Auckland International Airport

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we will consider how Auckland International Airport's decision to issue new shares in the company has impacted returns to shareholders. 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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Auckland International Airport increased the number of shares on issue by 21% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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. You can see a chart of Auckland International Airport's EPS by clicking here.

A Look At The Impact Of Auckland International Airport's Dilution on Its Earnings Per Share (EPS).

Auckland International Airport's net profit dropped by 42% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 63%. Sadly, earnings per share fell further, down a full 65% 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 Auckland International Airport'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 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 Auckland International Airport's Profit Performance

Over the last year Auckland International Airport issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Auckland International Airport's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 Auckland International Airport at this point in time. Case in point: We've spotted 2 warning signs for Auckland International Airport you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Auckland International Airport'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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