Earnings Troubles May Signal Larger Issues for Hanyang Digitech (KOSDAQ:078350) Shareholders

Despite Hanyang Digitech Co., Ltd.'s (KOSDAQ:078350) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Hanyang Digitech expanded the number of shares on issue by 26% 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 Hanyang Digitech's EPS by clicking here.

A Look At The Impact Of Hanyang Digitech's Dilution On Its Earnings Per Share (EPS)

Hanyang Digitech's net profit dropped by 53% per year over the last three years. Even looking at the last year, profit was still down 29%. Sadly, earnings per share fell further, down a full 28% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Hanyang Digitech'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 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 Hanyang Digitech.

Our Take On Hanyang Digitech's Profit Performance

Over the last year Hanyang Digitech issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Hanyang Digitech's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Hanyang Digitech at this point in time. Be aware that Hanyang Digitech is showing 3 warning signs in our investment analysis and 1 of those can't be ignored...

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