Ganesh Benzoplast (NSE:GANESHBE) Strong Profits May Be Masking Some Underlying Issues

The market shrugged off Ganesh Benzoplast Limited's (NSE:GANESHBE) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

See our latest analysis for Ganesh Benzoplast

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Ganesh Benzoplast expanded the number of shares on issue by 10% over the last year. That means its earnings are split among a greater number of shares. 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. Check out Ganesh Benzoplast's historical EPS growth by clicking on this link.

A Look At The Impact Of Ganesh Benzoplast's Dilution On Its Earnings Per Share (EPS)

As you can see above, Ganesh Benzoplast has been growing its net income over the last few years, with an annualized gain of 181% over three years. But EPS was only up 131% per year, in the exact same period. And in the last year the company managed to bump profit up by 12%. But in comparison, EPS only increased by 3.9% 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 it will certainly be a positive for shareholders if Ganesh Benzoplast can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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

Our Take On Ganesh Benzoplast's Profit Performance

Ganesh Benzoplast shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Ganesh Benzoplast's statutory profits are better than its underlying earnings power. 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 Ganesh Benzoplast at this point in time. Every company has risks, and we've spotted 1 warning sign for Ganesh Benzoplast you should know about.

This note has only looked at a single factor that sheds light on the nature of Ganesh Benzoplast'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 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.