Sichuan New Energy Power's (SZSE:000155) Profits Appear To Have Quality Issues

Sichuan New Energy Power Company Limited's (SZSE:000155) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Sichuan New Energy Power

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Sichuan New Energy Power increased the number of shares on issue by 25% over the last twelve months by issuing new shares. That means its earnings are split among 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 Sichuan New Energy Power's historical EPS growth by clicking on this link.

A Look At The Impact Of Sichuan New Energy Power's Dilution On Its Earnings Per Share (EPS)

Sichuan New Energy Power has improved its profit over the last three years, with an annualized gain of 117% in that time. In comparison, earnings per share only gained 74% over the same period. And in the last year the company managed to bump profit up by 2.9%. But earnings per share are actually down 4.5%, over the last twelve months. So you can see that the dilution has had a fairly significant impact on shareholders.

If Sichuan New Energy Power'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

Alongside that dilution, it's also important to note that Sichuan New Energy Power's profit suffered from unusual items, which reduced profit by CN¥159m in the last twelve months. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Sichuan New Energy Power to produce a higher profit next year, all else being equal.

Our Take On Sichuan New Energy Power's Profit Performance

To sum it all up, Sichuan New Energy Power 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. Based on these factors, we think it's very unlikely that Sichuan New Energy Power's statutory profits make it seem much weaker than it is. If you want to do dive deeper into Sichuan New Energy Power, you'd also look into what risks it is currently facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Sichuan New Energy Power.

Our examination of Sichuan New Energy Power 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.

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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.