Solid profit numbers didn't seem to be enough to please Macrolink Culturaltainment Development Co., Ltd.'s (SZSE:000620) shareholders. Our analysis has found some concerning factors which weaken the profit's foundation.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Macrolink Culturaltainment Development expanded the number of shares on issue by 210% 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. Check out Macrolink Culturaltainment Development's historical EPS growth by clicking on this link.

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

Three years ago, Macrolink Culturaltainment Development lost money. 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. So you can see that the dilution has had a fairly significant impact on shareholders.

If Macrolink Culturaltainment Development'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 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 Macrolink Culturaltainment Development.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Macrolink Culturaltainment Development's net profit by CN¥300m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Macrolink Culturaltainment Development's positive unusual items were quite significant relative to its profit in the year to December 2023. 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 Macrolink Culturaltainment Development's Profit Performance

To sum it all up, Macrolink Culturaltainment Development got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Macrolink Culturaltainment Development's statutory profits might make it look better than it really is on an underlying level. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 2 warning signs for Macrolink Culturaltainment Development (1 is a bit concerning!) and we strongly recommend you look at them before investing.

Our examination of Macrolink Culturaltainment Development 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.