Should You Rely On Eveready Industries India's (NSE:EVEREADY) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Eveready Industries India (NSE:EVEREADY).

While Eveready Industries India was able to generate revenue of ₹12.2b in the last twelve months, we think its profit result of ₹1.78b was more important. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

See our latest analysis for Eveready Industries India

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Eveready Industries India's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Eveready Industries India.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Eveready Industries India's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹1.5b worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Eveready Industries India's positive unusual items were quite significant relative to its profit in the year to March 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Eveready Industries India's Profit Performance

As we discussed above, we think the significant positive unusual item makes Eveready Industries India'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Eveready Industries India's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Eveready Industries India at this point in time. Case in point: We've spotted 3 warning signs for Eveready Industries India you should be mindful of and 1 of these doesn't sit too well with us.

This note has only looked at a single factor that sheds light on the nature of Eveready Industries India'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. 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. 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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