Hubei Kailong Chemical Group Co., Ltd.'s (SZSE:002783) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Hubei Kailong Chemical Group issued 28% more new shares 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. You can see a chart of Hubei Kailong Chemical Group's EPS by clicking here.

A Look At The Impact Of Hubei Kailong Chemical Group's Dilution On Its Earnings Per Share (EPS)

We don't have any data on the company's profits from three years ago. The good news is that profit was up 31% in the last twelve months. On the other hand, earnings per share are only up 29% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Hubei Kailong Chemical Group shareholders will want to see that EPS figure continue to increase. 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 Hubei Kailong Chemical Group.

Our Take On Hubei Kailong Chemical Group's Profit Performance

Each Hubei Kailong Chemical Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Hubei Kailong Chemical Group's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 29% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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. To that end, you should learn about the 4 warning signs we've spotted with Hubei Kailong Chemical Group (including 1 which is concerning).

Today we've zoomed in on a single data point to better understand the nature of Hubei Kailong Chemical Group'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.