G-SHANK Enterprise's (TWSE:2476) Weak Earnings May Only Reveal A Part Of The Whole Picture

Last week's earnings announcement from G-SHANK Enterprise Co., Ltd. (TWSE:2476) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for G-SHANK Enterprise

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, G-SHANK Enterprise issued 8.0% more new shares 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. You can see a chart of G-SHANK Enterprise's EPS by clicking here.

How Is Dilution Impacting G-SHANK Enterprise's Earnings Per Share (EPS)?

As you can see above, G-SHANK Enterprise has been growing its net income over the last few years, with an annualized gain of 135% over three years. Net profit actually dropped by 22% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 23%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if G-SHANK Enterprise'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 G-SHANK Enterprise.

Our Take On G-SHANK Enterprise's Profit Performance

Over the last year G-SHANK Enterprise issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that G-SHANK Enterprise's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for G-SHANK Enterprise you should know about.

Today we've zoomed in on a single data point to better understand the nature of G-SHANK Enterprise's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.