Rashtriya Chemicals and Fertilizers' (NSE:RCF) Anemic Earnings Might Be Worse Than You Think

The market rallied behind Rashtriya Chemicals and Fertilizers Limited's (NSE:RCF) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

See our latest analysis for Rashtriya Chemicals and Fertilizers

The Impact Of Unusual Items On Profit

For anyone who wants to understand Rashtriya Chemicals and Fertilizers' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹403m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. If Rashtriya Chemicals and Fertilizers doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Rashtriya Chemicals and Fertilizers.

Our Take On Rashtriya Chemicals and Fertilizers' Profit Performance

We'd posit that Rashtriya Chemicals and Fertilizers' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Rashtriya Chemicals and Fertilizers' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Rashtriya Chemicals and Fertilizers as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Rashtriya Chemicals and Fertilizers (1 is a bit concerning!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Rashtriya Chemicals and Fertilizers' 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. 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.