It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it’s not always clear whether statutory profits are a good guide, going forward. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Prosperity Dielectrics (GTSM:6173).
While Prosperity Dielectrics was able to generate revenue of NT$4.84b in the last twelve months, we think its profit result of NT$760.6m was more important. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).
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. This article will focus on the impact unusual items have had on Prosperity Dielectrics’ statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Prosperity Dielectrics.
The Impact Of Unusual Items On Profit
To properly understand Prosperity Dielectrics’ profit results, we need to consider the NT$100m gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. If Prosperity Dielectrics doesn’t see that contribution repeat, then all else being equal we’d expect its profit to drop over the current year.
Our Take On Prosperity Dielectrics’ Profit Performance
We’d posit that Prosperity Dielectrics’ statutory earnings aren’t a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Prosperity Dielectrics’ statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. 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. At Simply Wall St, we found 2 warning signs for Prosperity Dielectrics and we think they deserve your attention.
Today we’ve zoomed in on a single data point to better understand the nature of Prosperity Dielectrics’ profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an…
Go to the news source: Does Prosperity Dielectrics’s (GTSM:6173) Statutory Profit Adequately Reflect It…