Jiyi Holdings Limited (HKG:1495) recently posted soft earnings but shareholders didn't react strongly. We did some analysis and found some concerning details beneath the statutory profit number.

See our latest analysis for Jiyi Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Jiyi Holdings increased the number of shares on issue by 19% 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 Jiyi Holdings' EPS by clicking here.

A Look At The Impact Of Jiyi Holdings' Dilution on Its Earnings Per Share (EPS).

Jiyi Holdings' net profit dropped by 39% per year over the last three years. Even looking at the last year, profit was still down 24%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 35% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Jiyi Holdings' earnings per share can increase, then the share price should too. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiyi Holdings.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Jiyi Holdings' net profit by CN¥7.3m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that Jiyi Holdings' positive unusual items were quite significant relative to its profit in the year to December 2021. 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 Jiyi Holdings' Profit Performance

To sum it all up, Jiyi Holdings 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 Jiyi Holdings' statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Jiyi Holdings as a business, it's important to be aware of any risks it's facing. Be aware that Jiyi Holdings is showing 6 warning signs in our investment analysis and 2 of those don't sit too well with us...

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. 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.