We Think You Should Be Aware Of Some Concerning Factors In Foods and Inns' (NSE:FOODSIN) Earnings

The market for Foods and Inns Limited's (NSE:FOODSIN) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Our free stock report includes 5 warning signs investors should be aware of before investing in Foods and Inns. Read for free now.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Foods and Inns increased the number of shares on issue by 24% 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 Foods and Inns' EPS by clicking here.

How Is Dilution Impacting Foods and Inns' Earnings Per Share (EPS)?

As you can see above, Foods and Inns has been growing its net income over the last few years, with an annualized gain of 174% over three years. But EPS was only up 95% per year, in the exact same period. And in the last year the company managed to bump profit up by 14%. But that's starkly different from the 13% drop in earnings per share. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Foods and Inns' 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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 Foods and Inns' Profit Performance

Each Foods and Inns share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Foods and Inns' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. To that end, you should learn about the 5 warning signs we've spotted with Foods and Inns (including 2 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Foods and Inns' 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 with significant insider holdings to be useful.

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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.