Statutory Profit Doesn't Reflect How Good Modison Metals' (NSE:MODISNME) Earnings Are

Modison Metals Limited (NSE:MODISNME) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

See our latest analysis for Modison Metals

The Impact Of Unusual Items On Profit

For anyone who wants to understand Modison Metals' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹36m 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 Modison Metals 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 Modison Metals.

Our Take On Modison Metals' Profit Performance

Because unusual items detracted from Modison Metals' 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 Modison Metals' statutory profit actually understates its earnings potential! And the EPS is up 37% annually, over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for Modison Metals and you'll want to know about them.

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