Are Sundaram-Clayton's (NSE:SUNCLAYLTD) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Sundaram-Clayton (NSE:SUNCLAYLTD).

It's good to see that over the last twelve months Sundaram-Clayton made a profit of ₹522.0m on revenue of ₹168.3b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Sundaram-Clayton

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Sundaram-Clayton's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sundaram-Clayton.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sundaram-Clayton's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹1.4b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Sundaram-Clayton doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Sundaram-Clayton's Profit Performance

Because unusual items detracted from Sundaram-Clayton's 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 Sundaram-Clayton's statutory profit actually understates its earnings potential! 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 4 warning signs for Sundaram-Clayton you should be mindful of and 2 of these can't be ignored.

Today we've zoomed in on a single data point to better understand the nature of Sundaram-Clayton's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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 that insiders are buying to be useful.

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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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