Automotive Axles' (NSE:AUTOAXLES) Conservative Accounting Might Explain Soft Earnings

The market shrugged off the recent earnings report from Automotive Axles Limited (NSE:AUTOAXLES), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.

See our latest analysis for Automotive Axles

The Impact Of Unusual Items On Profit

For anyone who wants to understand Automotive Axles' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹38m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Automotive Axles 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 Automotive Axles.

Our Take On Automotive Axles' Profit Performance

Because unusual items detracted from Automotive Axles' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Automotive Axles' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 4 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Automotive Axles.

This note has only looked at a single factor that sheds light on the nature of Automotive Axles' 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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