Are Brightcom Group's (NSE:BCG) Statutory Earnings A Good Guide To Its Underlying Profitability?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Brightcom Group's (NSE:BCG) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Brightcom Group made a profit of ₹4.56b on revenue of ₹27.7b. In the chart below, you can see that its profit and revenue have both grown over the last three years.

See our latest analysis for Brightcom Group

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we will consider how Brightcom Group's decision to issue new shares in the company has impacted returns to shareholders. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Brightcom Group.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Brightcom Group issued 6.6% more new shares over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Brightcom Group's historical EPS growth by clicking on this link.

A Look At The Impact Of Brightcom Group's Dilution on Its Earnings Per Share (EPS).

As you can see above, Brightcom Group has been growing its net income over the last few years, with an annualized gain of 9.0% over three years. And over the last 12 months, the company grew its profit by 4.9%. Meanwhile, EPS was flat over the same period. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

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 Brightcom Group can grow EPS persistently. 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.

Our Take On Brightcom Group's Profit Performance

Each Brightcom Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Brightcom Group's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 5.6% per annum growth in EPS for the last three. 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. Every company has risks, and we've spotted 4 warning signs for Brightcom Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of Brightcom Group'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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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