As a general rule, we think profitable companies are less risky than companies that lose money. 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. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Ruifeng Power Group (HKG:2025).
It’s good to see that over the last twelve months Ruifeng Power Group made a profit of CN¥72.2m on revenue of CN¥457.9m. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.
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 Ruifeng Power Group 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 Ruifeng Power Group.
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, Ruifeng Power Group issued 15% more new shares over the last year. That means its earnings are split among 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 Ruifeng Power Group’s EPS by clicking here.
How Is Dilution Impacting Ruifeng Power Group’s Earnings Per Share? (EPS)
Ruifeng Power Group’s net profit dropped by 14% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 29%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 38% 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 returnsAnd so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, if Ruifeng Power Group’s earnings per share can increase, then the share price should too. 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.
Our Take On Ruifeng Power Group’s Profit Performance
Ruifeng Power Group issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Ruifeng Power Group’s statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company’s balance sheet. If you want to,you can see our take on Ruifeng Power Group’s balance sheet by clicking here.
Today we’ve zoomed in on a single data point to better understand the nature of Ruifeng Power Group’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. 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 firstname.lastname@example.org. 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.