Yasho Industries' (NSE:YASHO) Weak Earnings May Only Reveal A Part Of The Whole Picture

Investors were disappointed by Yasho Industries Limited's (NSE:YASHO ) latest earnings release. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Yasho Industries issued 5.8% more new shares over the last year. That means its earnings are split among 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 Yasho Industries' historical EPS growth by clicking on this link.

How Is Dilution Impacting Yasho Industries' Earnings Per Share (EPS)?

Yasho Industries' net profit dropped by 82% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 62%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 63% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Yasho Industries' earnings per share can increase, then the share price should too. 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.

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

Our Take On Yasho Industries' Profit Performance

Over the last year Yasho Industries issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Yasho Industries' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Yasho Industries has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Yasho Industries' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.