China Resources Power Holdings' (HKG:836) Profits May Not Reveal Underlying Issues

China Resources Power Holdings Company Limited's (HKG:836) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, China Resources Power Holdings issued 7.6% more new shares over the last year. 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 China Resources Power Holdings' historical EPS growth by clicking on this link.

How Is Dilution Impacting China Resources Power Holdings' Earnings Per Share (EPS)?

China Resources Power Holdings has improved its profit over the last three years, with an annualized gain of 1,379% in that time. In comparison, earnings per share only gained 1,313% over the same period. Net profit actually dropped by 5.3% in the last year. But the EPS result was even worse, with the company recording a decline of 9.6%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if China Resources Power Holdings' 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.

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.

Our Take On China Resources Power Holdings' Profit Performance

China Resources Power Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that China Resources Power Holdings' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about China Resources Power Holdings as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for China Resources Power Holdings you should be mindful of and 1 of these is concerning.

This note has only looked at a single factor that sheds light on the nature of China Resources Power Holdings' profit. 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. 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 with significant insider holdings 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.