Weak Statutory Earnings May Not Tell The Whole Story For Vishnu Chemicals (NSE:VISHNU)

The subdued market reaction suggests that Vishnu Chemicals Limited's (NSE:VISHNU) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Vishnu Chemicals

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Vishnu Chemicals increased the number of shares on issue by 9.7% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Vishnu Chemicals' EPS by clicking here.

How Is Dilution Impacting Vishnu Chemicals' Earnings Per Share (EPS)?

Vishnu Chemicals has improved its profit over the last three years, with an annualized gain of 193% in that time. In comparison, earnings per share only gained 175% over the same period. Net income was down 26% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 30%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Vishnu Chemicals' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Vishnu Chemicals.

Our Take On Vishnu Chemicals' Profit Performance

Vishnu Chemicals 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 Vishnu Chemicals' statutory profits are better than its underlying earnings power. 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 Vishnu Chemicals, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Vishnu Chemicals and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Vishnu Chemicals' 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.