Dynacons Systems & Solutions' (NSE:DSSL) Earnings Are Of Questionable Quality

Last week's profit announcement from Dynacons Systems & Solutions Limited (NSE:DSSL) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors are concerning.

Check out our latest analysis for Dynacons Systems & Solutions

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Dynacons Systems & Solutions increased the number of shares on issue by 10% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Dynacons Systems & Solutions' historical EPS growth by clicking on this link.

How Is Dilution Impacting Dynacons Systems & Solutions' Earnings Per Share? (EPS)

Dynacons Systems & Solutions has improved its profit over the last three years, with an annualized gain of 306% in that time. But EPS was only up 188% per year, in the exact same period. And at a glance the 49% gain in profit over the last year impresses. On the other hand, earnings per share are only up 50% in that time. Therefore, the dilution is having a noteworthy influence 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 Dynacons Systems & Solutions can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Dynacons Systems & Solutions.

Our Take On Dynacons Systems & Solutions' Profit Performance

Each Dynacons Systems & Solutions share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Dynacons Systems & Solutions' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you'd like to know more about Dynacons Systems & Solutions as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for Dynacons Systems & Solutions (1 can't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Dynacons Systems & Solutions' 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.

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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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