XL Holdings Berhad's (KLSE:XL) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for XL Holdings Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, XL Holdings Berhad issued 26% more new shares over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out XL Holdings Berhad's historical EPS growth by clicking on this link.

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

As you can see above, XL Holdings Berhad has been growing its net income over the last few years, with an annualized gain of 4,315% over three years. In comparison, earnings per share only gained 1,366% over the same period. And the 33% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 26% over the same period. Therefore, one can observe that the dilution is having a fairly profound effect 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 XL Holdings Berhad can grow EPS persistently. 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 XL Holdings Berhad.

Our Take On XL Holdings Berhad's Profit Performance

XL Holdings Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that XL Holdings Berhad's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into XL Holdings Berhad, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for XL Holdings Berhad you should know about.