Weak Statutory Earnings May Not Tell The Whole Story For Honda India Power Products (NSE:HONDAPOWER)

Last week's earnings announcement from Honda India Power Products Limited (NSE:HONDAPOWER) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Honda India Power Products

How Do Unusual Items Influence Profit?

For anyone who wants to understand Honda India Power Products' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹43m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Honda India Power Products doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Honda India Power Products.

Our Take On Honda India Power Products' Profit Performance

Arguably, Honda India Power Products' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Honda India Power Products' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 while earnings quality is important, it's equally important to consider the risks facing Honda India Power Products at this point in time. Every company has risks, and we've spotted 1 warning sign for Honda India Power Products you should know about.

Today we've zoomed in on a single data point to better understand the nature of Honda India Power Products' 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 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.