Why Jiangsu Tongguang Electronic Wire & Cable's (SZSE:300265) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Jiangsu Tongguang Electronic Wire & Cable Co., Ltd.'s (SZSE:300265) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Jiangsu Tongguang Electronic Wire & Cable

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Jiangsu Tongguang Electronic Wire & Cable expanded the number of shares on issue by 26% over the last year. 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 Jiangsu Tongguang Electronic Wire & Cable's EPS by clicking here.

A Look At The Impact Of Jiangsu Tongguang Electronic Wire & Cable's Dilution On Its Earnings Per Share (EPS)

Jiangsu Tongguang Electronic Wire & Cable has improved its profit over the last three years, with an annualized gain of 9.8% in that time. In contrast, earnings per share were actually down by 4.6% per year, in the exact same period. Net income was down 20% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 28%. So you can see that the dilution has had a fairly significant impact on shareholders.

If Jiangsu Tongguang Electronic Wire & Cable's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Tongguang Electronic Wire & Cable.

Our Take On Jiangsu Tongguang Electronic Wire & Cable's Profit Performance

Jiangsu Tongguang Electronic Wire & Cable 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 Jiangsu Tongguang Electronic Wire & Cable's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. 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, we've discovered 2 warning signs that you should run your eye over to get a better picture of Jiangsu Tongguang Electronic Wire & Cable.

This note has only looked at a single factor that sheds light on the nature of Jiangsu Tongguang Electronic Wire & Cable'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 that insiders are buying 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.