Should You Use Kelso Technologies's (TSE:KLS) Statutory Earnings To Analyse It?

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 Kelso Technologies (TSE:KLS).

While Kelso Technologies was able to generate revenue of US$15.1m in the last twelve months, we think its profit result of US$1.59m was more important. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for Kelso Technologies

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article, will discuss how a tax benefit impacted Kelso Technologies' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kelso Technologies.

An Unusual Tax Situation

Kelso Technologies reported a tax benefit of US$402k, which is well worth noting. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Kelso Technologies' Profit Performance

As we have already discussed Kelso Technologies reported that it received a tax benefit, rather than paying tax, in the last year. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Therefore, it seems possible to us that Kelso Technologies' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into Kelso Technologies, you'd also look into what risks it is currently facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Kelso Technologies.

Today we've zoomed in on a single data point to better understand the nature of Kelso Technologies' 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. 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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