Impressive Earnings May Not Tell The Whole Story For JK Lakshmi Cement (NSE:JKLAKSHMI)

JK Lakshmi Cement Limited (NSE:JKLAKSHMI) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. JK Lakshmi Cement expanded the number of shares on issue by 5.5% over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out JK Lakshmi Cement's historical EPS growth by clicking on this link.

A Look At The Impact Of JK Lakshmi Cement's Dilution On Its Earnings Per Share (EPS)

JK Lakshmi Cement has improved its profit over the last three years, with an annualized gain of 15% in that time. And at a glance the 35% gain in profit over the last year impresses. On the other hand, earnings per share are only up 28% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So JK Lakshmi Cement shareholders will want to see that EPS figure continue to increase. 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 JK Lakshmi Cement's Profit Performance

JK Lakshmi Cement shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that JK Lakshmi Cement's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 8.6% per annum growth in EPS for the last three. 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 JK Lakshmi Cement at this point in time. For example - JK Lakshmi Cement has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of JK Lakshmi Cement'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. 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.