Luoyang Xinqianglian Slewing Bearing Co., Ltd.'s (SZSE:300850) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Luoyang Xinqianglian Slewing Bearing issued 8.8% 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. Check out Luoyang Xinqianglian Slewing Bearing's historical EPS growth by clicking on this link.

How Is Dilution Impacting Luoyang Xinqianglian Slewing Bearing's Earnings Per Share (EPS)?

Luoyang Xinqianglian Slewing Bearing's net profit dropped by 41% per year over the last three years. On the bright side, in the last twelve months it grew profit by 6.1%. But EPS was less impressive, up only 3.4% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Luoyang Xinqianglian Slewing Bearing 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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Luoyang Xinqianglian Slewing Bearing's profit was boosted by unusual items worth CN¥29m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If Luoyang Xinqianglian Slewing Bearing 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 Luoyang Xinqianglian Slewing Bearing's Profit Performance

To sum it all up, Luoyang Xinqianglian Slewing Bearing 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 Luoyang Xinqianglian Slewing Bearing's statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Luoyang Xinqianglian Slewing Bearing, you'd also look into what risks it is currently facing. Our analysis shows 2 warning signs for Luoyang Xinqianglian Slewing Bearing (1 is potentially serious!) and we strongly recommend you look at these before investing.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.