Kirloskar Industries' (NSE:KIRLOSIND) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Kirloskar Industries Limited (NSE:KIRLOSIND) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for Kirloskar Industries

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Kirloskar Industries increased the number of shares on issue by 5.3% over the last twelve months by issuing new shares. 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. You can see a chart of Kirloskar Industries' EPS by clicking here.

A Look At The Impact Of Kirloskar Industries' Dilution On Its Earnings Per Share (EPS)

Unfortunately, Kirloskar Industries' profit is down 30% per year over three years. Even looking at the last year, profit was still down 27%. Sadly, earnings per share fell further, down a full 27% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Kirloskar Industries' 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 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 Kirloskar Industries.

Our Take On Kirloskar Industries' Profit Performance

Over the last year Kirloskar Industries issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Kirloskar Industries' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Kirloskar Industries.

This note has only looked at a single factor that sheds light on the nature of Kirloskar Industries' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.