Jaeyoung Solutec's (KOSDAQ:049630) Weak Earnings May Only Reveal A Part Of The Whole Picture

Jaeyoung Solutec Co., Ltd.'s (KOSDAQ:049630) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Jaeyoung Solutec expanded the number of shares on issue by 8.4% over the last year. 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 Jaeyoung Solutec's historical EPS growth by clicking on this link.

How Is Dilution Impacting Jaeyoung Solutec's Earnings Per Share (EPS)?

Three years ago, Jaeyoung Solutec lost money. Even looking at the last year, profit was still down 27%. Sadly, earnings per share fell further, down a full 27% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Jaeyoung Solutec's earnings per share can increase, then the share price should too. 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 Jaeyoung Solutec.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the ₩836m 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. Assuming those unusual expenses don't come up again, we'd therefore expect Jaeyoung Solutec to produce a higher profit next year, all else being equal.

Our Take On Jaeyoung Solutec's Profit Performance

Jaeyoung Solutec 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 unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Jaeyoung Solutec'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 Jaeyoung Solutec at this point in time. To help with this, we've discovered 3 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Jaeyoung Solutec.

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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.