Should You Use Savior Lifetec's (GTSM:4167) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Savior Lifetec (GTSM:4167).

While Savior Lifetec was able to generate revenue of NT$1.64b in the last twelve months, we think its profit result of NT$200.8m was more important.

Check out our latest analysis for Savior Lifetec

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 Savior Lifetec'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 Savior Lifetec.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Savior Lifetec expanded the number of shares on issue by 11% over the last year. 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 Savior Lifetec's EPS by clicking here.

How Is Dilution Impacting Savior Lifetec's Earnings Per Share? (EPS)

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). 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 Savior Lifetec'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 Savior Lifetec's Profit Performance

Savior Lifetec issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Savior Lifetec's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Savior Lifetec has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Savior Lifetec's 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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