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. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Central Asia Metals (LON:CAML).
It’s good to see that over the last twelve months Central Asia Metals made a profit of US$53.6m on revenue of US$180.4m. In the chart below, you can see that its profit and revenue have both grown over the last three years.
View our latest analysis for Central Asia Metals
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 will consider how Central Asia Metals’s decision to issue new shares in the company has impacted returns to shareholders. 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.
To understand the value of a company’s earnings growth, it is imperative to consider any dilution of shareholders’ interests. Central Asia Metals expanded the number of shares on issue by 12% over the last year. As a result, its net income is now split between 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 Central Asia Metals’s historical EPS growth by clicking on this link.
A Look At The Impact Of Central Asia Metals’s Dilution on Its Earnings Per Share (EPS).
As you can see above, Central Asia Metals has been growing its net income over the last few years, with an annualized gain of 94% over three years. But EPS was only up 22% per year, in the exact same period. And over the last 12 months, the company grew its profit by 7.4%. But that’s starkly different from the 4.1% drop in earnings per share. 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 returnsAnd so, you can see quite clearly that dilution is influencing shareholder earnings.
If Central Asia Metals’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 Central Asia Metals’s Profit Performance
Central Asia Metals shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Central Asia Metals’s statutory profits are better than its underlying earnings power. Nonetheless, it’s still worth noting that its earnings per share have grown at 22% over the last three years. 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. While it’s really important to consider how well a company’s statutory earnings represent its true earnings power, it’s also worth taking a look at what analysts are forecasting for the future. So feel free to check out our free graph representing analyst forecasts.
Today we’ve zoomed in on a single data point to better understand the nature of Central Asia Metals’s profit. But there are plenty of other ways to inform your opinion of a company. 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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January 04, 2020 at 03:56PM
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Does Central Asia Metals’s (LON:CAML) Statutory Profit Adequately Reflect Its Underlying Profit? - Simply Wall St
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