Virinchi's (NSE:VIRINCHI) Anemic Earnings Might Be Worse Than You Think

The subdued market reaction suggests that Virinchi Limited's (NSE:VIRINCHI) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Virinchi

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Virinchi issued 11% 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 Virinchi's EPS by clicking here.

How Is Dilution Impacting Virinchi's Earnings Per Share (EPS)?

Virinchi has improved its profit over the last three years, with an annualized gain of 99% in that time. But EPS was only up 50% per year, in the exact same period. Net profit actually dropped by 62% in the last year. But the EPS result was even worse, with the company recording a decline of 67%. So you can see that the dilution has had a bit of an impact on shareholders.

If Virinchi's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

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

Our Take On Virinchi's Profit Performance

Virinchi issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Virinchi's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 50% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 4 warning signs for Virinchi (of which 1 is a bit unpleasant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Virinchi'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 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.