Why East Asia Holdings Investment's (KOSDAQ:900110) Shaky Earnings Are Just The Beginning Of Its Problems

The market shrugged off East Asia Holdings Investment Limited's (KOSDAQ:900110) weak earnings report last week. We looked at the details, and we think that investors may be responding to some encouraging factors.

View our latest analysis for East Asia Holdings Investment

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. East Asia Holdings Investment expanded the number of shares on issue by 48% over the last year. Therefore, each share now receives a smaller portion of profit. 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 East Asia Holdings Investment's historical EPS growth by clicking on this link.

A Look At The Impact Of East Asia Holdings Investment's Dilution On Its Earnings Per Share (EPS)

East Asia Holdings Investment has improved its profit over the last three years, with an annualized gain of 49% in that time. But on the other hand, earnings per share actually fell by 54% per year. Net profit actually dropped by 4.6% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 41%. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if East Asia Holdings Investment's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 East Asia Holdings Investment.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the ₩675m impact of unusual items in the last year, which had the effect of suppressing profit. 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 that's hardly a surprise given these line items are considered unusual. If East Asia Holdings Investment 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 East Asia Holdings Investment's Profit Performance

To sum it all up, East Asia Holdings Investment took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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 East Asia Holdings Investment's 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. Every company has risks, and we've spotted 2 warning signs for East Asia Holdings Investment you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.