Shareholders didn't seem to be thrilled with Wisdom Wealth Resources Investment Holding Group Limited's (HKG:7) recent earnings report, despite healthy profit numbers. Our analysis suggests they may be concerned about some underlying details.

View our latest analysis for Wisdom Wealth Resources Investment Holding Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Wisdom Wealth Resources Investment Holding Group expanded the number of shares on issue by 45% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Wisdom Wealth Resources Investment Holding Group's historical EPS growth by clicking on this link.

A Look At The Impact Of Wisdom Wealth Resources Investment Holding Group's Dilution On Its Earnings Per Share (EPS)

Wisdom Wealth Resources Investment Holding Group was losing money three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a fairly significant impact on shareholders.

If Wisdom Wealth Resources Investment Holding Group'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 Wisdom Wealth Resources Investment Holding Group.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Wisdom Wealth Resources Investment Holding Group's profit was boosted by unusual items worth HK$541m 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. We can see that Wisdom Wealth Resources Investment Holding Group's positive unusual items were quite significant relative to its profit in the year to June 2022. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Wisdom Wealth Resources Investment Holding Group's Profit Performance

To sum it all up, Wisdom Wealth Resources Investment Holding Group got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Wisdom Wealth Resources Investment Holding Group's statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Wisdom Wealth Resources Investment Holding Group, you'd also look into what risks it is currently facing. When we did our research, we found 5 warning signs for Wisdom Wealth Resources Investment Holding Group (1 is potentially serious!) that we believe deserve your full attention.

Our examination of Wisdom Wealth Resources Investment Holding Group 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. 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.