Does JPP Holding's (TPE:5284) Statutory Profit Adequately Reflect Its Underlying Profit?

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 JPP Holding (TPE:5284).

While JPP Holding was able to generate revenue of NT$1.28b in the last twelve months, we think its profit result of NT$97.2m was more important. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

Check out our latest analysis for JPP Holding

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we'll look at how JPP Holding 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 JPP Holding.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. JPP Holding 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. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of JPP Holding's EPS by clicking here.

How Is Dilution Impacting JPP Holding's Earnings Per Share? (EPS)

JPP Holding's net profit dropped by 54% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 8.9%. Sadly, earnings per share fell further, down a full 16% 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, if JPP Holding's 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 JPP Holding's Profit Performance

Over the last year JPP Holding issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that JPP Holding's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 want to do dive deeper into JPP Holding, you'd also look into what risks it is currently facing. Be aware that JPP Holding is showing 5 warning signs in our investment analysis and 1 of those is significant...

Today we've zoomed in on a single data point to better understand the nature of JPP Holding'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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