We Think That There Are Issues Underlying Beijing Jingneng Thermal's (SZSE:002893) Earnings

Beijing Jingneng Thermal Co., Ltd. (SZSE:002893) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Beijing Jingneng Thermal

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Beijing Jingneng Thermal issued 30% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Beijing Jingneng Thermal's historical EPS growth by clicking on this link.

How Is Dilution Impacting Beijing Jingneng Thermal's Earnings Per Share (EPS)?

Beijing Jingneng Thermal has improved its profit over the last three years, with an annualized gain of 6.6% in that time. But on the other hand, earnings per share actually fell by 3.1% per year. And over the last 12 months, the company grew its profit by 5.3%. But earnings per share are actually down 3.7%, over the last twelve months. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if Beijing Jingneng Thermal'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Beijing Jingneng Thermal.

Our Take On Beijing Jingneng Thermal's Profit Performance

Each Beijing Jingneng Thermal share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Beijing Jingneng Thermal's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Beijing Jingneng Thermal has 2 warning signs (1 is a bit unpleasant!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Beijing Jingneng Thermal's profit. But there are plenty of other ways to inform your opinion of a company. 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.

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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.