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CSE Global Limited's (SGX:544) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
Check out our latest analysis for CSE Global
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. CSE Global expanded the number of shares on issue by 14% over the last year. 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. Check out CSE Global's historical EPS growth by clicking on this link.
How Is Dilution Impacting CSE Global's Earnings Per Share (EPS)?
CSE Global has improved its profit over the last three years, with an annualized gain of 76% in that time. But EPS was only up 33% per year, in the exact same period. And over the last 12 months, the company grew its profit by 17%. On the other hand, earnings per share are only up 6.6% in that time. So you can see that the dilution has had a bit of an impact on shareholders.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if CSE Global can grow EPS persistently. 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.
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.
The Impact Of Unusual Items On Profit
Alongside that dilution, it's also important to note that CSE Global's profit suffered from unusual items, which reduced profit by S$10m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect CSE Global to produce a higher profit next year, all else being equal.