We Think That There Are More Issues For Ning Xia Yin Xing EnergyLtd (SZSE:000862) Than Just Sluggish Earnings

Ning Xia Yin Xing Energy Co.,Ltd's (SZSE:000862) earnings announcement last week contained some soft numbers, disappointing investors. Our analysis suggests that while the headline numbers were soft, there are some positive factors which shareholders may have missed.

Check out our latest analysis for Ning Xia Yin Xing EnergyLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Ning Xia Yin Xing EnergyLtd increased the number of shares on issue by 30% over the last twelve months by issuing new shares. That means its earnings are split among 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. You can see a chart of Ning Xia Yin Xing EnergyLtd's EPS by clicking here.

A Look At The Impact Of Ning Xia Yin Xing EnergyLtd's Dilution On Its Earnings Per Share (EPS)

As you can see above, Ning Xia Yin Xing EnergyLtd has been growing its net income over the last few years, with an annualized gain of 368% over three years. In comparison, earnings per share only gained 321% over the same period. Net income was down 21% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 29%. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Ning Xia Yin Xing EnergyLtd'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 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 Ning Xia Yin Xing EnergyLtd.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Ning Xia Yin Xing EnergyLtd's profit suffered from unusual items, which reduced profit by CN¥47m 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. If Ning Xia Yin Xing EnergyLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Ning Xia Yin Xing EnergyLtd's Profit Performance

Ning Xia Yin Xing EnergyLtd 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 it's very unlikely that Ning Xia Yin Xing EnergyLtd's statutory profits make it seem much weaker than it is. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Ning Xia Yin Xing EnergyLtd has 3 warning signs (1 is a bit unpleasant!) that deserve your attention before going any further with your analysis.

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. 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.