Ningbo Tuopu Group Co.,Ltd.'s (SHSE:601689) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Ningbo Tuopu GroupLtd expanded the number of shares on issue by 5.5% 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. Check out Ningbo Tuopu GroupLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Ningbo Tuopu GroupLtd's Dilution On Its Earnings Per Share (EPS)

As you can see above, Ningbo Tuopu GroupLtd has been growing its net income over the last few years, with an annualized gain of 188% over three years. In comparison, earnings per share only gained 174% over the same period. And the 20% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 21% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Ningbo Tuopu GroupLtd 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Ningbo Tuopu GroupLtd's net profit by CN¥338m 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Ningbo Tuopu GroupLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Ningbo Tuopu GroupLtd's Profit Performance

To sum it all up, Ningbo Tuopu GroupLtd 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. Considering all this we'd argue Ningbo Tuopu GroupLtd's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Ningbo Tuopu GroupLtd as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Ningbo Tuopu GroupLtd you should be aware of.

Our examination of Ningbo Tuopu GroupLtd 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. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.