There May Be Underlying Issues With The Quality Of Indo Rama Synthetics (India)'s (NSE:INDORAMA) Earnings

Last week's profit announcement from Indo Rama Synthetics (India) Limited (NSE:INDORAMA) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors that they find to be concerning.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Indo Rama Synthetics (India)'s profit received a boost of ₹211m 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Indo Rama Synthetics (India) 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 Indo Rama Synthetics (India).

Our Take On Indo Rama Synthetics (India)'s Profit Performance

Arguably, Indo Rama Synthetics (India)'s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Indo Rama Synthetics (India)'s true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Indo Rama Synthetics (India) at this point in time. Every company has risks, and we've spotted 2 warning signs for Indo Rama Synthetics (India) (of which 1 is a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Indo Rama Synthetics (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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.