Statutory Earnings May Not Be The Best Way To Understand Bojun Education's (HKG:1758) True Position

Despite posting strong earnings, Bojun Education Company Limited's (HKG:1758) stock didn't move much over the last week. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

View our latest analysis for Bojun Education

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Bojun Education increased the number of shares on issue by 9.9% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. Check out Bojun Education's historical EPS growth by clicking on this link.

A Look At The Impact Of Bojun Education's Dilution On Its Earnings Per Share (EPS)

Three years ago, Bojun Education 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. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Bojun Education'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 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 Bojun Education.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Bojun Education's profit was boosted by unusual items worth CN¥86m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Bojun Education had a rather significant contribution from unusual items relative to its profit to August 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Bojun Education's Profit Performance

To sum it all up, Bojun Education got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Bojun Education's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Bojun Education, you'd also look into what risks it is currently facing. Our analysis shows 5 warning signs for Bojun Education (2 are significant!) and we strongly recommend you look at these bad boys before investing.

Our examination of Bojun Education has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 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.