We Think You Should Be Aware Of Some Concerning Factors In Vikas Lifecare's (NSE:VIKASLIFE) Earnings

Vikas Lifecare Limited's (NSE:VIKASLIFE) 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.

View our latest analysis for Vikas Lifecare

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Vikas Lifecare issued 25% more new shares 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. You can see a chart of Vikas Lifecare's EPS by clicking here.

How Is Dilution Impacting Vikas Lifecare's Earnings Per Share (EPS)?

Vikas Lifecare was losing money three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Vikas Lifecare'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 Vikas Lifecare.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Vikas Lifecare's profit suffered from unusual items, which reduced profit by ₹64m in the last twelve months. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Vikas Lifecare to produce a higher profit next year, all else being equal.

Our Take On Vikas Lifecare's Profit Performance

To sum it all up, Vikas Lifecare 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. Given the contrasting considerations, we don't have a strong view as to whether Vikas Lifecare's profits are an apt reflection of its underlying potential for profit. So while earnings quality is important, it's equally important to consider the risks facing Vikas Lifecare at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Vikas Lifecare.

Our examination of Vikas Lifecare has focussed on certain factors that can make its earnings look better than they are. 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. 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.

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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.