WuHan Yangtze Communication Industry GroupCo.Ltd's (SHSE:600345) Earnings Offer More Than Meets The Eye

The market shrugged off WuHan Yangtze Communication Industry GroupCo.,Ltd's (SHSE:600345) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

Check out our latest analysis for WuHan Yangtze Communication Industry GroupCo.Ltd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. WuHan Yangtze Communication Industry GroupCo.Ltd expanded the number of shares on issue by 66% over the last year. That means its earnings are split among a greater number of shares. 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 WuHan Yangtze Communication Industry GroupCo.Ltd's EPS by clicking here.

A Look At The Impact Of WuHan Yangtze Communication Industry GroupCo.Ltd's Dilution On Its Earnings Per Share (EPS)

WuHan Yangtze Communication Industry GroupCo.Ltd has improved its profit over the last three years, with an annualized gain of 102% in that time. But EPS was only up 73% per year, in the exact same period. However, net income was pretty flat over the last year with a miniscule increase. Meanwhile, EPS was actually down a full 17% over the period, highlighting just how different the profits look from a per-share perspective. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if WuHan Yangtze Communication Industry GroupCo.Ltd's earnings per share can increase, then the share price should too. 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 WuHan Yangtze Communication Industry GroupCo.Ltd.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the CN¥1.4m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. WuHan Yangtze Communication Industry GroupCo.Ltd took a rather significant hit from unusual items in the year to March 2024. 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 WuHan Yangtze Communication Industry GroupCo.Ltd's Profit Performance

WuHan Yangtze Communication Industry GroupCo.Ltd 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 unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Given the contrasting considerations, we don't have a strong view as to whether WuHan Yangtze Communication Industry GroupCo.Ltd's profits are an apt reflection of its underlying potential for profit. If you want to do dive deeper into WuHan Yangtze Communication Industry GroupCo.Ltd, you'd also look into what risks it is currently facing. To help with this, we've discovered 2 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in WuHan Yangtze Communication Industry GroupCo.Ltd.

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. 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 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.