Is There More To The Story Than Bin Chuan Enterprise's (GTSM:1569) Earnings Growth?

Statistically speaking, it is less risky to invest in profitable companies than in 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 Bin Chuan Enterprise (GTSM:1569).

While Bin Chuan Enterprise was able to generate revenue of NT$5.02b in the last twelve months, we think its profit result of NT$356.9m was more important. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

See our latest analysis for Bin Chuan Enterprise

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 Bin Chuan Enterprise 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 Bin Chuan Enterprise.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Bin Chuan Enterprise increased the number of shares on issue by 6.0% over the last twelve months by issuing new shares. 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 Bin Chuan Enterprise's EPS by clicking here.

How Is Dilution Impacting Bin Chuan Enterprise's Earnings Per Share? (EPS)

Bin Chuan Enterprise has improved its profit over the last three years, with an annualized gain of 26% in that time. In comparison, earnings per share only gained 9.8% over the same period. And the 444% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 439% 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.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Bin Chuan Enterprise can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On Bin Chuan Enterprise's Profit Performance

Each Bin Chuan Enterprise share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Bin Chuan Enterprise's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 Bin Chuan Enterprise as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Bin Chuan Enterprise you should be mindful of and 1 of them is significant.

Today we've zoomed in on a single data point to better understand the nature of Bin Chuan Enterprise's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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