Weak Statutory Earnings May Not Tell The Whole Story For Zhengzhou Qianweiyangchu Food (SZSE:001215)

Zhengzhou Qianweiyangchu Food Co., Ltd.'s (SZSE:001215) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Zhengzhou Qianweiyangchu Food

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Zhengzhou Qianweiyangchu Food increased the number of shares on issue by 12% over the last twelve months by issuing new shares. 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. You can see a chart of Zhengzhou Qianweiyangchu Food's EPS by clicking here.

How Is Dilution Impacting Zhengzhou Qianweiyangchu Food's Earnings Per Share (EPS)?

Zhengzhou Qianweiyangchu Food has improved its profit over the last three years, with an annualized gain of 44% in that time. But on the other hand, earnings per share actually fell by 3.6% per year. Net income was down 4.1% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 15%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Zhengzhou Qianweiyangchu Food's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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?

Alongside that dilution, it's also important to note that Zhengzhou Qianweiyangchu Food's profit was boosted by unusual items worth CN¥14m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Zhengzhou Qianweiyangchu Food 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 Zhengzhou Qianweiyangchu Food's Profit Performance

To sum it all up, Zhengzhou Qianweiyangchu Food got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. 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 Zhengzhou Qianweiyangchu Food's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Zhengzhou Qianweiyangchu Food, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Zhengzhou Qianweiyangchu Food, and understanding them should be part of your investment process.

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. 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 with significant insider holdings 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.