Are Privi Speciality Chemicals's (NSE:PRIVISCL) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Privi Speciality Chemicals (NSE:PRIVISCL).

It's good to see that over the last twelve months Privi Speciality Chemicals made a profit of ₹1.35b on revenue of ₹15.2b. Happily, it has grown both its profit and revenue over the last three years (but not in the last year), as you can see in the chart below.

View our latest analysis for Privi Speciality Chemicals

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Privi Speciality Chemicals' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Privi Speciality Chemicals.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Privi Speciality Chemicals' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹148m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Privi Speciality Chemicals' Profit Performance

We'd posit that Privi Speciality Chemicals' 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 Privi Speciality Chemicals' 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. 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. If you want to do dive deeper into Privi Speciality Chemicals, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Privi Speciality Chemicals has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Privi Speciality Chemicals' profit. 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. 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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