Should You Rely On Revathi Equipment's (NSE:REVATHI) Earnings Growth?

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 Revathi Equipment (NSE:REVATHI).

While Revathi Equipment was able to generate revenue of ₹1.37b in the last twelve months, we think its profit result of ₹158.8m was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

Check out our latest analysis for Revathi Equipment

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Revathi Equipment's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Revathi Equipment.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Revathi Equipment's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹21m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. If Revathi Equipment doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Revathi Equipment's Profit Performance

Arguably, Revathi Equipment's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Revathi Equipment's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. 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. When we did our research, we found 3 warning signs for Revathi Equipment (1 can't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Revathi Equipment's 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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