Why Rashtriya Chemicals and Fertilizers' (NSE:RCF) Shaky Earnings Are Just The Beginning Of Its Problems

Last week's earnings announcement from Rashtriya Chemicals and Fertilizers Limited (NSE:RCF) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Rashtriya Chemicals and Fertilizers

How Do Unusual Items Influence 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 ₹259m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Rashtriya Chemicals and Fertilizers you should know about.

Today we've zoomed in on a single data point to better understand the nature of Rashtriya Chemicals and Fertilizers' 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. 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.