Why Monte Carlo Fashions' (NSE:MONTECARLO) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Monte Carlo Fashions Limited's (NSE:MONTECARLO) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Monte Carlo Fashions

The Impact Of Unusual Items On Profit

For anyone who wants to understand Monte Carlo Fashions' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹103m 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. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Monte Carlo Fashions.

Our Take On Monte Carlo Fashions' Profit Performance

Arguably, Monte Carlo Fashions' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Monte Carlo Fashions' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. If you want to do dive deeper into Monte Carlo Fashions, you'd also look into what risks it is currently facing. Be aware that Monte Carlo Fashions is showing 3 warning signs in our investment analysis and 1 of those is potentially serious...

This note has only looked at a single factor that sheds light on the nature of Monte Carlo Fashions' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.