China Rare Earth Resources And Technology's (SZSE:000831) Soft Earnings Are Actually Better Than They Appear

Shareholders appeared unconcerned with China Rare Earth Resources And Technology Co., Ltd.'s (SZSE:000831) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for China Rare Earth Resources And Technology

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, China Rare Earth Resources And Technology issued 8.2% more new shares 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. Check out China Rare Earth Resources And Technology's historical EPS growth by clicking on this link.

A Look At The Impact Of China Rare Earth Resources And Technology's Dilution On Its Earnings Per Share (EPS)

China Rare Earth Resources And Technology's net profit dropped by 95% per year over the last three years. Even looking at the last year, profit was still down 97%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 97% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If China Rare Earth Resources And Technology'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 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.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the CN¥205m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to March 2024, China Rare Earth Resources And Technology 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 China Rare Earth Resources And Technology's Profit Performance

China Rare Earth Resources And Technology 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. Based on these factors, we think that China Rare Earth Resources And Technology's profits are a reasonably conservative guide to its underlying profitability. If you'd like to know more about China Rare Earth Resources And Technology as a business, it's important to be aware of any risks it's facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of China Rare Earth Resources And Technology.

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 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. 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.