Should You Rely On Uniphos Enterprises's (NSE:UNIENTER) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. This article will consider whether Uniphos Enterprises' (NSE:UNIENTER) statutory profits are a good guide to its underlying earnings.

While Uniphos Enterprises was able to generate revenue of ₹38.7m in the last twelve months, we think its profit result of ₹238.8m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years.

See our latest analysis for Uniphos Enterprises

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 focus on the impact unusual items have had on Uniphos Enterprises' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Uniphos Enterprises.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Uniphos Enterprises' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹6.9m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2020, Uniphos Enterprises had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Uniphos Enterprises' Profit Performance

As we discussed above, we think the significant unusual expense will make Uniphos Enterprises' statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Uniphos Enterprises' statutory profit actually understates its earnings potential! And the EPS is up 39% annually, 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Uniphos Enterprises is showing 3 warning signs in our investment analysis and 1 of those is concerning...

This note has only looked at a single factor that sheds light on the nature of Uniphos Enterprises' 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 indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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