Are CHC Healthcare Group's (TPE:4164) Statutory Earnings A Good Guide To Its Underlying Profitability?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether CHC Healthcare Group's (TPE:4164) statutory profits are a good guide to its underlying earnings.

We like the fact that CHC Healthcare Group made a profit of NT$395.9m on its revenue of NT$2.63b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its revenue has slipped in the last twelve months.

Check out our latest analysis for CHC Healthcare Group

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we'll look at how CHC Healthcare Group is impacting shareholders by issuing new shares. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CHC Healthcare Group.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. CHC Healthcare Group expanded the number of shares on issue by 6.9% over the last year. That means its earnings are split among 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 CHC Healthcare Group's historical EPS growth by clicking on this link.

A Look At The Impact Of CHC Healthcare Group's Dilution on Its Earnings Per Share (EPS).

CHC Healthcare Group has improved its profit over the last three years, with an annualized gain of 67% in that time. However, net income was pretty flat over the last year with a miniscule decrease. In contrast, earnings per share are actually down a full 3.1%, 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 CHC Healthcare Group's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On CHC Healthcare Group's Profit Performance

Over the last year CHC Healthcare Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that CHC Healthcare Group's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 65% per annum growth in EPS for the last three. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've found that CHC Healthcare Group has 3 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of CHC Healthcare Group's profit. 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. 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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