Shareholders Will Be Pleased With The Quality of Guangdong Jinma Entertainment's (SZSE:300756) Earnings

Even though Guangdong Jinma Entertainment Corporation Limited (SZSE:300756 ) posted strong earnings, investors appeared to be underwhelmed. We did some digging and actually think they are being unnecessarily pessimistic.

See our latest analysis for Guangdong Jinma Entertainment

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Guangdong Jinma Entertainment issued 11% more new shares over the last year. 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. Check out Guangdong Jinma Entertainment's historical EPS growth by clicking on this link.

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

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. On the bright side, in the last twelve months it grew profit by 6,768%. But EPS was less impressive, up only 6,380% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Guangdong Jinma Entertainment shareholders will want to see that EPS figure continue to increase. 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 Guangdong Jinma Entertainment.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Guangdong Jinma Entertainment's profit suffered from unusual items, which reduced profit by CN¥35m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. In the twelve months to March 2024, Guangdong Jinma Entertainment had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Guangdong Jinma Entertainment's Profit Performance

Guangdong Jinma Entertainment 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. Considering all the aforementioned, we'd venture that Guangdong Jinma Entertainment's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you'd like to know more about Guangdong Jinma Entertainment as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 4 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Guangdong Jinma Entertainment.

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 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.