Investors Shouldn't Be Too Comfortable With Afarak Group Oyj's (HEL:AFAGR) Robust Earnings

Last week's profit announcement from Afarak Group Oyj (HEL:AFAGR) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

View our latest analysis for Afarak Group Oyj

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Afarak Group Oyj issued 5.7% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Afarak Group Oyj's EPS by clicking here.

A Look At The Impact Of Afarak Group Oyj's Dilution On Its Earnings Per Share (EPS)

Three years ago, Afarak Group Oyj lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Afarak Group Oyj's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Afarak Group Oyj.

Our Take On Afarak Group Oyj's Profit Performance

Afarak Group Oyj issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Afarak Group Oyj's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 2 warning signs for Afarak Group Oyj (of which 1 is potentially serious!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Afarak Group Oyj's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.