We Think That There Are Some Issues For Fuji Nihon (TSE:2114) Beyond Its Promising Earnings

Fuji Nihon Corporation's (TSE:2114) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Fuji Nihon increased the number of shares on issue by 6.5% 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 Fuji Nihon's historical EPS growth by clicking on this link.

How Is Dilution Impacting Fuji Nihon's Earnings Per Share (EPS)?

As you can see above, Fuji Nihon has been growing its net income over the last few years, with an annualized gain of 50% over three years. And in the last year the company managed to bump profit up by 6.7%. On the other hand, earnings per share are only up 11% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Fuji Nihon can grow EPS persistently. 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 Fuji Nihon.

Our Take On Fuji Nihon's Profit Performance

Each Fuji Nihon share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Fuji Nihon's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 55% over the last three years. 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. If you want to do dive deeper into Fuji Nihon, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Fuji Nihon you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Fuji Nihon's profit. But there are plenty of other ways to inform your opinion of a company. 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.