Earnings Troubles May Signal Larger Issues for Reliance Industrial Infrastructure (NSE:RIIL) Shareholders

Reliance Industrial Infrastructure Limited's (NSE:RIIL) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Reliance Industrial Infrastructure

The Impact Of Unusual Items On Profit

To properly understand Reliance Industrial Infrastructure's profit results, we need to consider the ₹34m gain attributed to unusual items. 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. Reliance Industrial Infrastructure had a rather significant contribution from unusual items relative to its profit to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Reliance Industrial Infrastructure.

Our Take On Reliance Industrial Infrastructure's Profit Performance

As we discussed above, we think the significant positive unusual item makes Reliance Industrial Infrastructure's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Reliance Industrial Infrastructure's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 38% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Reliance Industrial Infrastructure you should know about.

Today we've zoomed in on a single data point to better understand the nature of Reliance Industrial Infrastructure's profit. 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.