We Think That There Are Issues Underlying Ramkrishna Forgings' (NSE:RKFORGE) Earnings

Investors were disappointed with Ramkrishna Forgings Limited's (NSE:RKFORGE) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

Check out our latest analysis for Ramkrishna Forgings

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Ramkrishna Forgings expanded the number of shares on issue by 13% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Ramkrishna Forgings' historical EPS growth by clicking on this link.

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

Ramkrishna Forgings has improved its profit over the last three years, with an annualized gain of 1,552% in that time. In comparison, earnings per share only gained 1,473% over the same period. And the 38% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 31% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Ramkrishna Forgings 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 Ramkrishna Forgings' Profit Performance

Each Ramkrishna Forgings share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Ramkrishna Forgings' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Ramkrishna Forgings, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Ramkrishna Forgings you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Ramkrishna Forgings' profit. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.