Jilin Aodong Pharmaceutical Group Co., Ltd.'s (SZSE:000623) stock wasn't much affected by its recent lackluster earnings numbers. We did some digging, and we believe that investors are missing some worrying factors underlying the profit figures.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Jilin Aodong Pharmaceutical Group expanded the number of shares on issue by 5.3% 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 Jilin Aodong Pharmaceutical Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting Jilin Aodong Pharmaceutical Group's Earnings Per Share (EPS)?

Unfortunately, Jilin Aodong Pharmaceutical Group's profit is down 15% per year over three years. Even looking at the last year, profit was still down 18%. Sadly, earnings per share fell further, down a full 17% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Jilin Aodong Pharmaceutical Group's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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?

Alongside that dilution, it's also important to note that Jilin Aodong Pharmaceutical Group's profit was boosted by unusual items worth CN¥139m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Jilin Aodong Pharmaceutical Group had a rather significant contribution from unusual items relative to its profit to December 2023. 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 Jilin Aodong Pharmaceutical Group's Profit Performance

To sum it all up, Jilin Aodong Pharmaceutical Group 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 Jilin Aodong Pharmaceutical Group'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. Every company has risks, and we've spotted 3 warning signs for Jilin Aodong Pharmaceutical Group you should know about.

Our examination of Jilin Aodong Pharmaceutical 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. 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 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.