United Overseas Australia's (ASX:UOS) Profits Appear To Have Quality Issues

United Overseas Australia Ltd (ASX:UOS) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

View our latest analysis for United Overseas Australia

The Impact Of Unusual Items On Profit

To properly understand United Overseas Australia's profit results, we need to consider the AU$20m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If United Overseas Australia doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On United Overseas Australia's Profit Performance

Arguably, United Overseas Australia's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that United Overseas Australia's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 12% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing United Overseas Australia at this point in time. When we did our research, we found 2 warning signs for United Overseas Australia (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of United Overseas Australia'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.