Solid Earnings May Not Tell The Whole Story For Shree Rama Multi-Tech (NSE:SHREERAMA)

Shree Rama Multi-Tech Limited's (NSE:SHREERAMA) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Shree Rama Multi-Tech

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Shree Rama Multi-Tech increased the number of shares on issue by 110% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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 Shree Rama Multi-Tech's historical EPS growth by clicking on this link.

How Is Dilution Impacting Shree Rama Multi-Tech's Earnings Per Share (EPS)?

We don't have any data on the company's profits from three years ago. The good news is that profit was up 98% in the last twelve months. But EPS was less impressive, up only 5.7% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Shree Rama Multi-Tech can grow EPS persistently. 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 Shree Rama Multi-Tech.

Our Take On Shree Rama Multi-Tech's Profit Performance

As we discussed above, Shree Rama Multi-Tech's dilution over the last year has a major impact on its per-share earnings. For this reason, we think that Shree Rama Multi-Tech's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 5.7% in the last year. 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. If you want to do dive deeper into Shree Rama Multi-Tech, you'd also look into what risks it is currently facing. To that end, you should learn about the 2 warning signs we've spotted with Shree Rama Multi-Tech (including 1 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Shree Rama Multi-Tech'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.