We're Not Counting On Sterling and Wilson Solar (NSE:SWSOLAR) To Sustain Its Statutory Profitability

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Sterling and Wilson Solar's (NSE:SWSOLAR) statutory profits are a good guide to its underlying earnings.

While Sterling and Wilson Solar was able to generate revenue of ₹55.5b in the last twelve months, we think its profit result of ₹2.22b was more important.

See our latest analysis for Sterling and Wilson Solar

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Sterling and Wilson Solar's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sterling and Wilson Solar.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sterling and Wilson Solar's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹441m 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 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. Which is hardly surprising, given the name. Sterling and Wilson Solar had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Sterling and Wilson Solar's Profit Performance

As we discussed above, we think the significant positive unusual item makes Sterling and Wilson Solar'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sterling and Wilson Solar's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To help with this, we've discovered 6 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Sterling and Wilson Solar.

This note has only looked at a single factor that sheds light on the nature of Sterling and Wilson Solar's 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. 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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