There Are Some Reasons To Suggest That Yong Tai Berhad's (KLSE:YONGTAI) Earnings Are A Poor Reflection Of Profitability

Following the release of a positive earnings report recently, Yong Tai Berhad's (KLSE:YONGTAI) stock performed well. Despite this, we feel that there are some reasons to be cautious with these earnings.

Check out our latest analysis for Yong Tai Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Yong Tai Berhad issued 13% more new shares over the last year. As a result, its net income is now split between 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. You can see a chart of Yong Tai Berhad's EPS by clicking here.

How Is Dilution Impacting Yong Tai Berhad's Earnings Per Share (EPS)?

Yong Tai Berhad was losing money three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Yong Tai Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Yong Tai Berhad.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Yong Tai Berhad's net profit by RM70m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Yong Tai Berhad's positive unusual items were quite significant relative to its profit in the year to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Yong Tai Berhad's Profit Performance

To sum it all up, Yong Tai Berhad got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. 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. Considering all this we'd argue Yong Tai Berhad's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Yong Tai Berhad as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 5 warning signs (2 can't be ignored!) that you ought to be aware of before buying any shares in Yong Tai Berhad.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.