Hangzhou Silan MicroelectronicsLtd's (SHSE:600460) Performance Is Even Better Than Its Earnings Suggest

Even though Hangzhou Silan Microelectronics Co.,Ltd's (SHSE:600460) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

Check out our latest analysis for Hangzhou Silan MicroelectronicsLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Hangzhou Silan MicroelectronicsLtd expanded the number of shares on issue by 18% over the last year. 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. You can see a chart of Hangzhou Silan MicroelectronicsLtd's EPS by clicking here.

A Look At The Impact Of Hangzhou Silan MicroelectronicsLtd's Dilution On Its Earnings Per Share (EPS)

Hangzhou Silan MicroelectronicsLtd's net profit dropped by 76% per year over the last three years. The good news is that profit was up 105% in the last twelve months. On the other hand, earnings per share are only up 110% 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 Hangzhou Silan MicroelectronicsLtd shareholders will want to see that EPS figure continue to increase. 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

Alongside that dilution, it's also important to note that Hangzhou Silan MicroelectronicsLtd's profit suffered from unusual items, which reduced profit by CN¥289m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Hangzhou Silan MicroelectronicsLtd took a rather significant hit from unusual items in the year to September 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Hangzhou Silan MicroelectronicsLtd's Profit Performance

To sum it all up, Hangzhou Silan MicroelectronicsLtd took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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 Hangzhou Silan MicroelectronicsLtd's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. So while earnings quality is important, it's equally important to consider the risks facing Hangzhou Silan MicroelectronicsLtd at this point in time. Every company has risks, and we've spotted 2 warning signs for Hangzhou Silan MicroelectronicsLtd you should know about.

Our examination of Hangzhou Silan MicroelectronicsLtd has focussed on certain factors that can make its earnings look better than they are. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.