Statutory Profit Doesn't Reflect How Good TopGum Industries' (TLV:TPGM) Earnings Are

TopGum Industries Ltd. (TLV:TPGM) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

View our latest analysis for TopGum Industries

The Impact Of Unusual Items On Profit

For anyone who wants to understand TopGum Industries' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$583k 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, after all, that's exactly what the accounting terminology implies. If TopGum Industries doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On TopGum Industries' Profit Performance

Because unusual items detracted from TopGum Industries' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that TopGum Industries' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. While earnings are important, another area to consider is the balance sheet. If you're interested we have a graphic representation of TopGum Industries' balance sheet.

This note has only looked at a single factor that sheds light on the nature of TopGum Industries' 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.