We're Not Counting On Wisdom Marine Lines (TPE:2637) To Sustain Its Statutory Profitability

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Wisdom Marine Lines (TPE:2637).

While Wisdom Marine Lines was able to generate revenue of US$402.2m in the last twelve months, we think its profit result of US$4.02m was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Wisdom Marine Lines

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. Therefore, today we will consider the nature of Wisdom Marine Lines' statutory earnings with reference to its dilution of shareholders and the impact of unusual items. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wisdom Marine Lines.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Wisdom Marine Lines issued 5.8% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Wisdom Marine Lines' EPS by clicking here.

A Look At The Impact Of Wisdom Marine Lines' Dilution on Its Earnings Per Share (EPS).

Unfortunately, Wisdom Marine Lines' profit is down 79% per year over three years. And even focusing only on the last twelve months, we see profit is down 95%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 95% in the same period. 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 Wisdom Marine Lines' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Wisdom Marine Lines' net profit by US$4.2m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Wisdom Marine Lines' Profit Performance

To sum it all up, Wisdom Marine Lines got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Wisdom Marine Lines' profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Wisdom Marine Lines as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 6 warning signs for Wisdom Marine Lines you should be mindful of and 2 of these can't be ignored.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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