Even though Pansar Berhad's (KLSE:PANSAR) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

View our latest analysis for Pansar Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Pansar Berhad increased the number of shares on issue by 9.0% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Pansar Berhad's EPS by clicking here.

A Look At The Impact Of Pansar Berhad's Dilution On Its Earnings Per Share (EPS)

As you can see above, Pansar Berhad has been growing its net income over the last few years, with an annualized gain of 104% over three years. And at a glance the 150% gain in profit over the last year impresses. On the other hand, earnings per share are only up 147% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Pansar Berhad can grow EPS persistently. 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.

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

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the RM6.0m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Pansar Berhad doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Pansar Berhad's Profit Performance

To sum it all up, Pansar Berhad took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it's hard to tell if Pansar Berhad's profits are a reasonable reflection of its underlying profitability. So while earnings quality is important, it's equally important to consider the risks facing Pansar Berhad at this point in time. For example, Pansar Berhad has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.