Should You Rely On Korporacja Gospodarcza efekt's (WSE:EFK) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Korporacja Gospodarcza efekt (WSE:EFK).

While Korporacja Gospodarcza efekt was able to generate revenue of zł33.4m in the last twelve months, we think its profit result of zł31.2m was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

View our latest analysis for Korporacja Gospodarcza efekt

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 Korporacja Gospodarcza efekt is impacting shareholders by issuing new shares, as well as how unusual items have affected the income line. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Korporacja Gospodarcza efekt.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Korporacja Gospodarcza efekt issued 200% more new shares over the last year. As a result, its net income is now split between 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. Check out Korporacja Gospodarcza efekt's historical EPS growth by clicking on this link.

How Is Dilution Impacting Korporacja Gospodarcza efekt's Earnings Per Share? (EPS)

As you can see above, Korporacja Gospodarcza efekt has been growing its net income over the last few years, with an annualized gain of 291% over three years. But EPS was only up 33% per year, in the exact same period. And the 682% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 165% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Korporacja Gospodarcza efekt 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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Korporacja Gospodarcza efekt's net profit by zł27m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Korporacja Gospodarcza efekt had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Korporacja Gospodarcza efekt's Profit Performance

In its last report Korporacja Gospodarcza efekt benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. On reflection, the above-mentioned factors give us the strong impression that Korporacja Gospodarcza efekt'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. If you'd like to know more about Korporacja Gospodarcza efekt 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 Korporacja Gospodarcza efekt you should be mindful of and 2 of these bad boys don't sit too well with us.

Our examination of Korporacja Gospodarcza efekt has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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