Vintage Coffee and Beverages (NSE:VINCOFE) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Vintage Coffee and Beverages Limited (NSE:VINCOFE) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Vintage Coffee and Beverages

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Vintage Coffee and Beverages increased the number of shares on issue by 17% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Vintage Coffee and Beverages' EPS by clicking here.

How Is Dilution Impacting Vintage Coffee and Beverages' Earnings Per Share (EPS)?

Three years ago, Vintage Coffee and Beverages lost money. The good news is that profit was up 194% in the last twelve months. But EPS was less impressive, up only 127% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Vintage Coffee and Beverages 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 Vintage Coffee and Beverages.

Our Take On Vintage Coffee and Beverages' Profit Performance

Each Vintage Coffee and Beverages share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Vintage Coffee and Beverages' true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Vintage Coffee and Beverages as a business, it's important to be aware of any risks it's facing. Our analysis shows 2 warning signs for Vintage Coffee and Beverages (1 shouldn't be ignored!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Vintage Coffee and Beverages' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.