Shareholders didn't appear too concerned by Zhejiang Jinfei Kaida Wheel Co.,Ltd.'s (SZSE:002863) weak earnings. We did some analysis and found some concerning details beneath the statutory profit number.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Zhejiang Jinfei Kaida WheelLtd increased the number of shares on issue by 20% 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. You can see a chart of Zhejiang Jinfei Kaida WheelLtd's EPS by clicking here.

A Look At The Impact Of Zhejiang Jinfei Kaida WheelLtd's Dilution On Its Earnings Per Share (EPS)

Zhejiang Jinfei Kaida WheelLtd has improved its profit over the last three years, with an annualized gain of 9.1% in that time. In contrast, earnings per share were actually down by 9.7% per year, in the exact same period. Net profit actually dropped by 30% in the last year. But the EPS result was even worse, with the company recording a decline of 43%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Zhejiang Jinfei Kaida WheelLtd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Jinfei Kaida WheelLtd.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Zhejiang Jinfei Kaida WheelLtd's profit was boosted by unusual items worth CN¥80m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Zhejiang Jinfei Kaida WheelLtd's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Zhejiang Jinfei Kaida WheelLtd's Profit Performance

To sum it all up, Zhejiang Jinfei Kaida WheelLtd 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 Zhejiang Jinfei Kaida WheelLtd's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 4 warning signs for Zhejiang Jinfei Kaida WheelLtd you should be mindful of and 1 of them shouldn't be ignored.

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 is always more to discover if you are capable of focussing your mind on minutiae. 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.