Brinova Fastigheter (STO:BRIN B) Is Growing Earnings But Are They A Good Guide?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Brinova Fastigheter's (STO:BRIN B) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Brinova Fastigheter made a profit of kr155.8m on revenue of kr302.7m. In the chart below, you can see that its profit and revenue have both grown over the last three years.

View our latest analysis for Brinova Fastigheter

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 Brinova Fastigheter 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 Brinova Fastigheter.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Brinova Fastigheter increased the number of shares on issue by 17% 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. Check out Brinova Fastigheter's historical EPS growth by clicking on this link.

How Is Dilution Impacting Brinova Fastigheter's Earnings Per Share? (EPS)

Brinova Fastigheter has improved its profit over the last three years, with an annualized gain of 83% in that time. In comparison, earnings per share only gained 56% over the same period. And at a glance the 32% gain in profit over the last year impresses. But in comparison, EPS only increased by 18% over the same period. 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.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Brinova Fastigheter 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 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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Brinova Fastigheter's net profit by kr70m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Brinova Fastigheter 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 Brinova Fastigheter's Profit Performance

In its last report Brinova Fastigheter benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Brinova Fastigheter's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Brinova Fastigheter, you'd also look into what risks it is currently facing. To help with this, we've discovered 3 warning signs (1 is concerning!) that you ought to be aware of before buying any shares in Brinova Fastigheter.

Our examination of Brinova Fastigheter 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. 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 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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