Chevron Corporation's (NYSE:CVX) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Chevron issued 14% more new shares over the last year. 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 Chevron's EPS by clicking here.

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

Unfortunately, Chevron's profit is down 69% per year over three years. Even looking at the last year, profit was still down 30%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 34% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Chevron'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.

Our Take On Chevron's Profit Performance

Over the last year Chevron issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Chevron's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing.

This note has only looked at a single factor that sheds light on the nature of Chevron's profit. 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 with high insider ownership.

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.