Weak Statutory Earnings May Not Tell The Whole Story For Tatva Chintan Pharma Chem (NSE:TATVA)

Tatva Chintan Pharma Chem Limited's (NSE:TATVA) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Tatva Chintan Pharma Chem

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Tatva Chintan Pharma Chem increased the number of shares on issue by 5.5% 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. You can see a chart of Tatva Chintan Pharma Chem's EPS by clicking here.

How Is Dilution Impacting Tatva Chintan Pharma Chem's Earnings Per Share (EPS)?

Unfortunately, Tatva Chintan Pharma Chem's profit is down 42% per year over three years. And even focusing only on the last twelve months, we see profit is down 33%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 35% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Tatva Chintan Pharma Chem's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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 Tatva Chintan Pharma Chem's Profit Performance

Tatva Chintan Pharma Chem issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Tatva Chintan Pharma Chem's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Tatva Chintan Pharma Chem you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Tatva Chintan Pharma Chem's profit. But there are plenty of other ways to inform your opinion of a company. 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.