Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. This article will consider whether Kanger International Berhad‘s (KLSE:KANGER) statutory profits are a good guide to its underlying earnings.
We like the fact that Kanger International Berhad made a profit of RM4.96m on its revenue of RM63.0m, in the last year. The chart below shows that both revenue and profit have declined over the last three years.
Check out our latest analysis for Kanger International Berhad
Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. In this article we’ll look at how Kanger International Berhad 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 Kanger International Berhad.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Kanger International Berhad increased the number of shares on issue by 9.3% over the last twelve months by issuing new shares. That means its earnings are split among 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 Kanger International Berhad’s EPS by clicking here.
How Is Dilution Impacting Kanger International Berhad’s Earnings Per Share? (EPS)
Unfortunately, Kanger International Berhad’s profit is down 61% per year over three years. However, it was steady in the last year. Meanwhile, earnings per share were actually down 8.5%, over the last twelve months.But EPS was considerably worse, since it declined 8.5% 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 returnsAnd so, you can see quite clearly that dilution is influencing shareholder earnings.
If Kanger International Berhad’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 Kanger International Berhad’s Profit Performance
Kanger International Berhad 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 Kanger International Berhad’s true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 earnings are important, another area to consider is the balance sheet. If you’re interestedwe have a graphic representation of Kanger International Berhad’s balance sheet.
Today we’ve zoomed in on a single data point to better understand the nature of Kanger International Berhad’s 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.
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 02, 2020 at 09:22AM
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Does Kanger International Berhad’s (KLSE:KANGER) Statutory Profit Adequately Reflect Its Underlying Profit? - Simply Wall St
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