Impressive Earnings May Not Tell The Whole Story For Century Enka (NSE:CENTENKA)

Unsurprisingly, Century Enka Limited's (NSE:CENTENKA) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Century Enka

How Do Unusual Items Influence Profit?

For anyone who wants to understand Century Enka's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹166m 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 that's as you'd expect, given these boosts are described as 'unusual'. If Century Enka doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Century Enka.

Our Take On Century Enka's Profit Performance

Arguably, Century Enka's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Century Enka's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 67% EPS growth 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 Century Enka at this point in time. Every company has risks, and we've spotted 3 warning signs for Century Enka (of which 1 is concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Century Enka's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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 with significant insider holdings to be useful.

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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.