Is There More To The Story Than Technocraft Industries (India)'s (NSE:TIIL) Earnings Growth?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Technocraft Industries (India)'s (NSE:TIIL) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Technocraft Industries (India) made a profit of ₹1.22b on revenue of ₹12.6b. Happily, it has grown both its profit and revenue over the last three years (though we note its revenue is down over the last year).

View our latest analysis for Technocraft Industries (India)

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 Technocraft Industries (India)'s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Technocraft Industries (India).

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Technocraft Industries (India)'s profit received a boost of ₹128m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Technocraft Industries (India) 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 Technocraft Industries (India)'s Profit Performance

Arguably, Technocraft Industries (India)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Technocraft Industries (India)'s statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 18% 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. So while earnings quality is important, it's equally important to consider the risks facing Technocraft Industries (India) at this point in time. Case in point: We've spotted 1 warning sign for Technocraft Industries (India) you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Technocraft Industries (India)'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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