Here's Why We Don't Think NatureWise Biotech & Medicals's (GTSM:4732) Statutory Earnings Reflect Its Underlying Earnings Potential

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. In this article, we'll look at how useful this year's statutory profit is, when analysing NatureWise Biotech & Medicals (GTSM:4732).

It's good to see that over the last twelve months NatureWise Biotech & Medicals made a profit of NT$75.7m on revenue of NT$353.8m. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

Check out our latest analysis for NatureWise Biotech & Medicals

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'll look at how NatureWise Biotech & Medicals 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 NatureWise Biotech & Medicals.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, NatureWise Biotech & Medicals issued 33% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 NatureWise Biotech & Medicals' EPS by clicking here.

A Look At The Impact Of NatureWise Biotech & Medicals' Dilution on Its Earnings Per Share (EPS).

NatureWise Biotech & Medicals was losing money three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if NatureWise Biotech & Medicals' earnings per share can increase, then the share price should too. 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 NatureWise Biotech & Medicals' Profit Performance

Over the last year NatureWise Biotech & Medicals issued new shares and so, there's a noteworthy divergence between EPS and net income growth. As a result, we think it may well be the case that NatureWise Biotech & Medicals' underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. If you'd like to know more about NatureWise Biotech & Medicals as a business, it's important to be aware of any risks it's facing. For example - NatureWise Biotech & Medicals has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of NatureWise Biotech & Medicals' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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