VT Industrial Technology Co.,Ltd (SZSE:300707) recently posted some strong earnings, and the market responded positively. We did some digging and found some further encouraging factors that investors will like.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, VT Industrial TechnologyLtd increased the number of shares on issue by 13% over the last twelve months by issuing new shares. 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 VT Industrial TechnologyLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of VT Industrial TechnologyLtd's Dilution On Its Earnings Per Share (EPS)

As you can see above, VT Industrial TechnologyLtd has been growing its net income over the last few years, with an annualized gain of 81% over three years. In comparison, earnings per share only gained 56% over the same period. And at a glance the 23% gain in profit over the last year impresses. But in comparison, EPS only increased by 6.4% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So VT Industrial TechnologyLtd 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of VT Industrial TechnologyLtd.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the CN¥26m 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect VT Industrial TechnologyLtd to produce a higher profit next year, all else being equal.

Our Take On VT Industrial TechnologyLtd's Profit Performance

VT Industrial TechnologyLtd 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 on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Considering the aforementioned, we think that VT Industrial TechnologyLtd's profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 4 warning signs for VT Industrial TechnologyLtd you should be mindful of and 2 of these bad boys can't be ignored.

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. 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 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.