We Think You Should Be Aware Of Some Concerning Factors In Ruchi Soya Industries' (NSE:RUCHI) Earnings

The recent earnings posted by Ruchi Soya Industries Limited (NSE:RUCHI) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Ruchi Soya Industries

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Ruchi Soya Industries increased the number of shares on issue by 22% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Ruchi Soya Industries' historical EPS growth by clicking on this link.

How Is Dilution Impacting Ruchi Soya Industries' Earnings Per Share? (EPS)

Ruchi Soya Industries was losing money three years ago. On the bright side, in the last twelve months it grew profit by 18%. On the other hand, earnings per share are only up 18% over the same period. 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 Ruchi Soya Industries shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Ruchi Soya Industries' Profit Performance

Each Ruchi Soya Industries share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Ruchi Soya Industries' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 18% EPS growth in the last year. 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 while earnings quality is important, it's equally important to consider the risks facing Ruchi Soya Industries at this point in time. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Ruchi Soya Industries.

Today we've zoomed in on a single data point to better understand the nature of Ruchi Soya Industries' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.