Investors were disappointed with SFL Corporation Ltd.'s (NYSE:SFL) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

View our latest analysis for SFL

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, SFL increased the number of shares on issue by 6.6% over the last twelve months by issuing new shares. 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. You can see a chart of SFL's EPS by clicking here.

A Look At The Impact Of SFL's Dilution On Its Earnings Per Share (EPS)

SFL was losing money three years ago. The good news is that profit was up 40% in the last twelve months. On the other hand, earnings per share are only up 40% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if SFL can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

Our Take On SFL's Profit Performance

SFL 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 SFL's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 40% in the last year. 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 SFL, you'd also look into what risks it is currently facing. Our analysis shows 4 warning signs for SFL (3 can't be ignored!) and we strongly recommend you look at these bad boys before investing.

This note has only looked at a single factor that sheds light on the nature of SFL's profit. 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. 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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.