There May Be Some Bright Spots In hyungji Elite's (KRX:093240) Earnings

The market for hyungji Elite Co., Ltd.'s (KRX:093240) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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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, hyungji Elite increased the number of shares on issue by 8.4% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out hyungji Elite's historical EPS growth by clicking on this link.

How Is Dilution Impacting hyungji Elite's Earnings Per Share (EPS)?

hyungji Elite's net profit dropped by 56% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 41%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 49% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If hyungji Elite's 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 hyungji Elite.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the ₩2.7b impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect hyungji Elite to produce a higher profit next year, all else being equal.

Our Take On hyungji Elite's Profit Performance

hyungji Elite 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, it's hard to tell if hyungji Elite's profits are a reasonable reflection of its underlying profitability. So while earnings quality is important, it's equally important to consider the risks facing hyungji Elite at this point in time. For example - hyungji Elite has 4 warning signs we think you should be aware of.

Our examination of hyungji Elite has focussed on certain factors that can make its earnings look better than they are. 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.