Shenzhen Desay Battery Technology's (SZSE:000049) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Shenzhen Desay Battery Technology Co., Ltd.'s (SZSE:000049) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Shenzhen Desay Battery Technology

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Shenzhen Desay Battery Technology increased the number of shares on issue by 28% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Shenzhen Desay Battery Technology's EPS by clicking here.

How Is Dilution Impacting Shenzhen Desay Battery Technology's Earnings Per Share (EPS)?

Shenzhen Desay Battery Technology's net profit dropped by 47% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 32%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 40% in the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Shenzhen Desay Battery Technology's earnings per share can increase, then the share price should too. 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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the CN¥218m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Shenzhen Desay Battery Technology doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Shenzhen Desay Battery Technology's Profit Performance

Shenzhen Desay Battery Technology suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it's hard to tell if Shenzhen Desay Battery Technology's profits are a reasonable reflection of its underlying profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Shenzhen Desay Battery Technology has 4 warning signs we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.