Renaissance Global's (NSE:RGL) Earnings Are Of Questionable Quality

Renaissance Global Limited (NSE:RGL) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Renaissance Global

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Renaissance Global's profit received a boost of ₹116m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Renaissance Global's Profit Performance

Arguably, Renaissance Global's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Renaissance Global's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 29% per annum growth in EPS for the last three. 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 while earnings quality is important, it's equally important to consider the risks facing Renaissance Global at this point in time. Case in point: We've spotted 3 warning signs for Renaissance Global you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Renaissance Global'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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.

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