Shareholders didn't appear too concerned by Vanjee Technology Co., Ltd.'s (SZSE:300552) weak earnings. We did some analysis and found some concerning details beneath the statutory profit number.

See our latest analysis for Vanjee Technology

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Vanjee Technology issued 7.8% more new shares 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 Vanjee Technology's historical EPS growth by clicking on this link.

How Is Dilution Impacting Vanjee Technology's Earnings Per Share? (EPS)

Vanjee Technology has improved its profit over the last three years, with an annualized gain of 547% in that time. Net income was down 93% over the last twelve months. But the EPS result was even worth, with the company recording a decline of 93%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Vanjee Technology's 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Vanjee Technology's profit was boosted by unusual items worth CN¥3.5m 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. And that's as you'd expect, given these boosts are described as 'unusual'. Vanjee Technology had a rather significant contribution from unusual items relative to its profit to December 2021. 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 Vanjee Technology's Profit Performance

In its last report Vanjee Technology benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. 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 Vanjee Technology'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. In terms of investment risks, we've identified 3 warning signs with Vanjee Technology, and understanding these bad boys should be part of your investment process.

Our examination of Vanjee Technology 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. 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.