The market seemed underwhelmed by the solid earnings posted by Aviat Networks, Inc. (NASDAQ:AVNW) recently. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Aviat Networks issued 9.8% more new shares over the last year. As a result, its net income is now split between 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 Aviat Networks' historical EPS growth by clicking on this link.

How Is Dilution Impacting Aviat Networks' Earnings Per Share (EPS)?

Unfortunately, Aviat Networks' profit is down 87% per year over three years. On the bright side, in the last twelve months it grew profit by 7.1%. But EPS was less impressive, and was pretty much flat over that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Aviat Networks shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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?

On top of the dilution, we should also consider the US$10m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Aviat Networks doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Aviat Networks' Profit Performance

To sum it all up, Aviat Networks took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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. After taking into account all these factors, we think that Aviat Networks' statutory results are a decent reflection of its underlying earnings power. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Aviat Networks has 2 warning signs and it would be unwise to ignore them.

Our examination of Aviat Networks has focussed on certain factors that can make its earnings look better than they are. 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.