D B Realty (NSE:DBREALTY) Is Posting Solid Earnings, But It Is Not All Good News

Investors appear disappointed with D B Realty Limited's (NSE:DBREALTY) recent earnings, despite the decent statutory profit number. We did some digging and found some worrying factors that they might be paying attention to.

See our latest analysis for D B Realty

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, D B Realty issued 57% more new shares over the last year. As a result, its net income is now split between 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. You can see a chart of D B Realty's EPS by clicking here.

How Is Dilution Impacting D B Realty's Earnings Per Share (EPS)?

D B Realty was losing money three years ago. The good news is that profit was up 173% in the last twelve months. On the other hand, earnings per share are only up 33% over the same period. 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 D B Realty 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 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 D B Realty.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted D B Realty's net profit by ₹13b over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. D B Realty had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On D B Realty's Profit Performance

In its last report D B Realty benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. On reflection, the above-mentioned factors give us the strong impression that D B Realty'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. If you'd like to know more about D B Realty as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for D B Realty you should be mindful of and 2 of these bad boys are a bit concerning.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.