Robust Earnings May Not Tell The Whole Story For Bunkyodo Group Holdings (TYO:9978)

Bunkyodo Group Holdings Co., Ltd.'s (TYO:9978) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Bunkyodo Group Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Bunkyodo Group Holdings increased the number of shares on issue by 144% over the last twelve months by issuing new shares. That means its earnings are split among 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 Bunkyodo Group Holdings' historical EPS growth by clicking on this link.

How Is Dilution Impacting Bunkyodo Group Holdings' Earnings Per Share? (EPS)

Bunkyodo Group Holdings was losing money three years ago. 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). Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Bunkyodo Group Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Bunkyodo Group Holdings.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Bunkyodo Group Holdings' profit suffered from unusual items, which reduced profit by JP¥70m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Bunkyodo Group Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Bunkyodo Group Holdings' Profit Performance

Bunkyodo Group Holdings suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, we think it's very unlikely that Bunkyodo Group Holdings' statutory profits make it seem much weaker than it is. 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. Be aware that Bunkyodo Group Holdings is showing 3 warning signs in our investment analysis and 2 of those make us uncomfortable...

Our examination of Bunkyodo Group Holdings has focussed on certain factors that can make its earnings look better than they are. 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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