We're Not Counting On Kewal Kiran Clothing (NSE:KKCL) To Sustain Its Statutory Profitability

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. This article will consider whether Kewal Kiran Clothing's (NSE:KKCL) statutory profits are a good guide to its underlying earnings.

While Kewal Kiran Clothing was able to generate revenue of ₹3.27b in the last twelve months, we think its profit result of ₹276.1m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Kewal Kiran Clothing

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 Kewal Kiran Clothing's most recent profit results. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Kewal Kiran Clothing's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹156m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Kewal Kiran Clothing 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 Kewal Kiran Clothing's Profit Performance

As previously mentioned, Kewal Kiran Clothing's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Kewal Kiran Clothing's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Kewal Kiran Clothing as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Kewal Kiran Clothing and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Kewal Kiran Clothing'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. 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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