Magnum Ventures' (NSE:MAGNUM) Shareholders Have More To Worry About Than Lackluster Earnings

Magnum Ventures Limited's (NSE:MAGNUM) lackluster earnings announcement last week disappointed investors. We think there is more to the story than simply soft profit numbers. Our analysis shows that there are some other factors of concern.

Check out our latest analysis for Magnum Ventures

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Magnum Ventures expanded the number of shares on issue by 51% 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 Magnum Ventures' historical EPS growth by clicking on this link.

How Is Dilution Impacting Magnum Ventures' Earnings Per Share (EPS)?

As you can see above, Magnum Ventures has been growing its net income over the last few years, with an annualized gain of 1,742% over three years. But EPS was only up 1,072% per year, in the exact same period. Net profit actually dropped by 65% in the last year. But the EPS result was even worse, with the company recording a decline of 73%. So you can see that the dilution has had a fairly significant impact on shareholders.

If Magnum Ventures' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Magnum Ventures.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Magnum Ventures' net profit by ₹59m over the last year. 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that Magnum Ventures' positive unusual items were quite significant relative to its profit in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Magnum Ventures' Profit Performance

In its last report Magnum Ventures benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For all the reasons mentioned above, we think that, at a glance, Magnum Ventures' statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Magnum Ventures has 4 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

Our examination of Magnum Ventures has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.