We Think You Can Look Beyond CML Microsystems' (LON:CML) Lackluster Earnings

Soft earnings didn't appear to concern CML Microsystems plc's (LON:CML) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that CML Microsystems' profit was reduced by UK£1.6m, due to unusual items, over the last year. 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. CML Microsystems took a rather significant hit from unusual items in the year to September 2025. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CML Microsystems.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that CML Microsystems received a tax benefit which contributed UK£193k to the bottom line. 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! The receipt of a tax benefit is obviously a good thing, on its own. 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. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On CML Microsystems' Profit Performance

In its last report CML Microsystems received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Considering all the aforementioned, we'd venture that CML Microsystems' profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that CML Microsystems is showing 4 warning signs in our investment analysis and 2 of those can't be ignored...

Our examination of CML Microsystems has focussed on certain factors that can make its earnings look better than they are. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.