Is There More To The Story Than K2A Knaust & Andersson Fastigheter's (STO:K2A B) Earnings Growth?

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. In this article, we'll look at how useful this year's statutory profit is, when analysing K2A Knaust & Andersson Fastigheter (STO:K2A B).

While K2A Knaust & Andersson Fastigheter was able to generate revenue of kr187.9m in the last twelve months, we think its profit result of kr177.1m was more important. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

Check out our latest analysis for K2A Knaust & Andersson 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. Therefore, today we will consider the nature of K2A Knaust & Andersson Fastigheter's statutory earnings with reference to its dilution of shareholders and the impact of unusual items. 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, K2A Knaust & Andersson Fastigheter increased the number of shares on issue by 6.5% over the last twelve months by issuing new shares. As a result, its net income is now split between 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 K2A Knaust & Andersson Fastigheter's EPS by clicking here.

How Is Dilution Impacting K2A Knaust & Andersson Fastigheter's Earnings Per Share? (EPS)

K2A Knaust & Andersson Fastigheter has improved its profit over the last three years, with an annualized gain of 68% in that time. But EPS was only up 17% per year, in the exact same period. And the 31% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 3.9% 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 K2A Knaust & Andersson 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 K2A Knaust & Andersson Fastigheter's net profit by kr228m 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 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'. We can see that K2A Knaust & Andersson Fastigheter's positive unusual items were quite significant relative to its profit in the year 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 K2A Knaust & Andersson Fastigheter's Profit Performance

To sum it all up, K2A Knaust & Andersson Fastigheter got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue K2A Knaust & Andersson Fastigheter's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about K2A Knaust & Andersson Fastigheter as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for K2A Knaust & Andersson Fastigheter (2 can't be ignored) you should be familiar with.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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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