We Like Kothari Products' (NSE:KOTHARIPRO) Earnings For More Than Just Statutory Profit

Kothari Products Limited's (NSE:KOTHARIPRO) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

View our latest analysis for Kothari Products

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kothari Products' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹43m 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, after all, that's exactly what the accounting terminology implies. In the twelve months to September 2023, Kothari Products had a big unusual items expense. 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 Kothari Products.

Our Take On Kothari Products' Profit Performance

As we discussed above, we think the significant unusual expense will make Kothari Products' statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Kothari Products' statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 17% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Kothari Products at this point in time. For example, Kothari Products has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Kothari Products' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.