Does Advancetek EnterpriseLtd's (TPE:1442) Statutory Profit Adequately Reflect Its Underlying Profit?

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 Advancetek EnterpriseLtd's (TPE:1442) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Advancetek EnterpriseLtd made a profit of NT$42.1m on revenue of NT$2.07b. At the risk of seeming quaint, we do like to at least examine profit, even when a stock is improving revenue and considered a 'growth stock'. Below, you can see that both its revenue and its profit have fallen over the last three years.

Check out our latest analysis for Advancetek EnterpriseLtd

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 Advancetek EnterpriseLtd 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 Advancetek EnterpriseLtd.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Advancetek EnterpriseLtd expanded the number of shares on issue by 6.6% 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. Check out Advancetek EnterpriseLtd's historical EPS growth by clicking on this link.

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

Unfortunately, Advancetek EnterpriseLtd's profit is down 91% per year over three years. Even looking at the last year, profit was still down 46%. Sadly, earnings per share fell further, down a full 47% in that time. 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 Advancetek EnterpriseLtd'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 Advancetek EnterpriseLtd's Profit Performance

Advancetek EnterpriseLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Advancetek EnterpriseLtd'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. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 5 warning signs for Advancetek EnterpriseLtd (2 are significant!) and we strongly recommend you look at these bad boys before investing.

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