There Are Some Holes In Ningxia Orient Tantalum Industry's (SZSE:000962) Solid Earnings Release

Ningxia Orient Tantalum Industry Co., Ltd.'s (SZSE:000962) stock performed strongly after the recent earnings report. However, we think that investors should be cautious when interpreting the profit numbers.

Check out our latest analysis for Ningxia Orient Tantalum Industry

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Ningxia Orient Tantalum Industry increased the number of shares on issue by 15% 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 Ningxia Orient Tantalum Industry's historical EPS growth by clicking on this link.

How Is Dilution Impacting Ningxia Orient Tantalum Industry's Earnings Per Share (EPS)?

Ningxia Orient Tantalum Industry has improved its profit over the last three years, with an annualized gain of 279% in that time. In comparison, earnings per share only gained 267% over the same period. And over the last 12 months, the company grew its profit by 10%. But in comparison, EPS only increased by 6.5% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Ningxia Orient Tantalum Industry can grow EPS persistently. 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.

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

Finally, we should also consider the fact that unusual items boosted Ningxia Orient Tantalum Industry's net profit by CN¥29m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that Ningxia Orient Tantalum Industry's positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Ningxia Orient Tantalum Industry's Profit Performance

In its last report Ningxia Orient Tantalum Industry benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Ningxia Orient Tantalum Industry's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Ningxia Orient Tantalum Industry, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Ningxia Orient Tantalum Industry has 1 warning sign and it would be unwise to ignore this.

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. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.