We Wouldn't Rely On OK Biotech's (TPE:4155) Statutory Earnings As A Guide

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. This article will consider whether OK Biotech's (TPE:4155) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months OK Biotech made a profit of NT$127.3m on revenue of NT$1.41b. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).

View our latest analysis for OK Biotech

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 OK Biotech is impacting shareholders by issuing new shares. 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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. OK Biotech expanded the number of shares on issue by 27% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of OK Biotech's EPS by clicking here.

How Is Dilution Impacting OK Biotech's Earnings Per Share? (EPS)

As you can see above, OK Biotech has been growing its net income over the last few years, with an annualized gain of 9.7% over three years. But on the other hand, earnings per share actually fell by 9.7% per year. Net income was down 4.3% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 11%. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if OK Biotech'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On OK Biotech's Profit Performance

OK Biotech issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that OK Biotech's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 3 warning signs for OK Biotech and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of OK Biotech'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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