Bunka Shutter (TSE:5930) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Investors were disappointed with Bunka Shutter Co., Ltd.'s (TSE:5930) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

Check out our latest analysis for Bunka Shutter

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Bunka Shutter expanded the number of shares on issue by 16% over the last year. 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. You can see a chart of Bunka Shutter's EPS by clicking here.

How Is Dilution Impacting Bunka Shutter's Earnings Per Share (EPS)?

As you can see above, Bunka Shutter has been growing its net income over the last few years, with an annualized gain of 26% over three years. And at a glance the 34% gain in profit over the last year impresses. But in comparison, EPS only increased by 29% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Bunka Shutter can grow EPS persistently. 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 Bunka Shutter.

Our Take On Bunka Shutter's Profit Performance

Bunka Shutter shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Bunka Shutter's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 34% per annum growth in EPS for the last three. 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 Bunka Shutter as a business, it's important to be aware of any risks it's facing. For example - Bunka Shutter has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Bunka Shutter'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. 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.