N2TechLtd (KOSDAQ:227950) Is Posting Solid Earnings, But It Is Not All Good News

Solid profit numbers didn't seem to be enough to please N2Tech Co.,Ltd's (KOSDAQ:227950) shareholders. Our analysis has found some concerning factors which weaken the profit's foundation.

See our latest analysis for N2TechLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, N2TechLtd increased the number of shares on issue by 13% 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. You can see a chart of N2TechLtd's EPS by clicking here.

A Look At The Impact Of N2TechLtd's Dilution On Its Earnings Per Share (EPS)

N2TechLtd was losing money three years ago. The good news is that profit was up 572% in the last twelve months. But EPS was less impressive, up only 512% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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 N2TechLtd can grow EPS persistently. 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 N2TechLtd.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that N2TechLtd's profit was boosted by unusual items worth ₩8.9b in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. N2TechLtd had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On N2TechLtd's Profit Performance

In its last report N2TechLtd benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at N2TechLtd's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about N2TechLtd as a business, it's important to be aware of any risks it's facing. For example - N2TechLtd has 4 warning signs we think you should be aware of.

Our examination of N2TechLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 that insiders are buying.

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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.