Earnings Troubles May Signal Larger Issues for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (SZSE:300826) Shareholders

The subdued market reaction suggests that NanJing Research Institute of Surveying, Mapping & Geotechnical Investigation, Co.Ltd's (SZSE:300826) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd increased the number of shares on issue by 8.4% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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 NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's Dilution On Its Earnings Per Share (EPS)

Unfortunately, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's profit is down 47% per year over three years. Even looking at the last year, profit was still down 44%. Sadly, earnings per share fell further, down a full 43% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd'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 NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's profit was boosted by unusual items worth CN¥14m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's Profit Performance

In its last report NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 6 warning signs for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (of which 1 can't be ignored!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.