Rajshree Polypack's (NSE:RPPL) Earnings Are Of Questionable Quality

Rajshree Polypack Limited (NSE:RPPL) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

Check out our latest analysis for Rajshree Polypack

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Rajshree Polypack increased the number of shares on issue by 6.7% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Rajshree Polypack's historical EPS growth by clicking on this link.

How Is Dilution Impacting Rajshree Polypack's Earnings Per Share (EPS)?

Rajshree Polypack's net profit dropped by 3.3% per year over the last three years. The good news is that profit was up 30% in the last twelve months. But EPS was less impressive, up only 19% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Rajshree Polypack shareholders will want to see that EPS figure continue to increase. 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 Rajshree Polypack.

Our Take On Rajshree Polypack's Profit Performance

Rajshree Polypack shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Rajshree Polypack's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 19% 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. If you want to do dive deeper into Rajshree Polypack, you'd also look into what risks it is currently facing. To help with this, we've discovered 5 warning signs (2 are a bit unpleasant!) that you ought to be aware of before buying any shares in Rajshree Polypack.

This note has only looked at a single factor that sheds light on the nature of Rajshree Polypack's 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. 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.