Statistically speaking it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Arvind SmartSpaces (NSE:ARVSMART).
While Arvind SmartSpaces was able to generate revenue of ₹2.61b in the last twelve months, we think its profit result of ₹327.8m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years.
View our latest analysis for Arvind SmartSpaces
Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we'll look at how Arvind SmartSpaces is impacting shareholders by issuing new shares. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Arvind SmartSpaces.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Arvind SmartSpaces issued 7.2% 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. Check out Arvind SmartSpaces's historical EPS growth by clicking on this link.
A Look At The Impact Of Arvind SmartSpaces's Dilution on Its Earnings Per Share (EPS).
Arvind SmartSpaces has improved its profit over the last three years, with an annualized gain of 45% in that time. But EPS was only up 5.9% per year, in the exact same period. And at a glance the 38% gain in profit over the last year impresses. But in comparison, EPS only increased by 5.9% 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 returnsAnd so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Arvind SmartSpaces 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 Arvind SmartSpaces's Profit Performance
Arvind SmartSpaces shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Arvind SmartSpaces's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 5.9% per annum growth in EPS for the last three. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. If you want to,you can see our take on Arvind SmartSpaces's balance sheet by clicking here.
This note has only looked at a single factor that sheds light on the nature of Arvind SmartSpaces'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. 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 that insiders are buying to be useful.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.