As a general rule, we think profitable companies are less risky than companies that lose money. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Chilisin Electronics' (TPE:2456) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months Chilisin Electronics made a profit of NT$1.54b on revenue of NT$16.9b. One positive is that it has grown both its profit and its revenue, over the last few years.
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 Chilisin Electronics is impacting shareholders by issuing new shares. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Chilisin Electronics issued 5.8% more new shares over the last year. That means its earnings are split among 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. Check out Chilisin Electronics' historical EPS growth by clicking on this link.
How Is Dilution Impacting Chilisin Electronics' Earnings Per Share? (EPS)
As you can see above, Chilisin Electronics has been growing its net income over the last few years, with an annualized gain of 2.7% over three years. In contrast, earnings per share were actually down by 43% per year, in the exact same period. And in the last year the company managed to bump profit up by 17%. On the other hand, earnings per share are only up 11% 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.
In the long term, earnings per share growth should beget share price growth. So Chilisin Electronics shareholders will want to see that EPS figure continue to increase. 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 Chilisin Electronics' Profit Performance
Chilisin Electronics shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Chilisin Electronics' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 11% in the 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 Chilisin Electronics as a business, it's important to be aware of any risks it's facing. When we did our research, we found 4 warning signs for Chilisin Electronics (1 is a bit unpleasant!) that we believe deserve your full attention.
Today we've zoomed in on a single data point to better understand the nature of Chilisin Electronics' 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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