Does Excelsior Medical's (TPE:4104) Statutory Profit Adequately Reflect Its Underlying Profit?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. This article will consider whether Excelsior Medical's (TPE:4104) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Excelsior Medical made a profit of NT$544.7m on revenue of NT$6.71b. 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 Excelsior Medical

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we will consider how Excelsior Medical's decision to issue new shares in the company has impacted returns to shareholders. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Excelsior Medical.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Excelsior Medical issued 10% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Excelsior Medical's historical EPS growth by clicking on this link.

A Look At The Impact Of Excelsior Medical's Dilution on Its Earnings Per Share (EPS).

As you can see above, Excelsior Medical has been growing its net income over the last few years, with an annualized gain of 37% over three years. And in the last year the company managed to bump profit up by 6.7%. On the other hand, earnings per share are pretty much flat, over the last twelve months. 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.

If Excelsior Medical's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Our Take On Excelsior Medical's Profit Performance

Each Excelsior Medical share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Excelsior Medical's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 27% over the last three years. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Excelsior Medical and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Excelsior Medical'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. 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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