Here's Why We Think Dhunseri Tea & Industries's (NSE:DTIL) Statutory Earnings Might Be Conservative

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. In this article, we'll look at how useful this year's statutory profit is, when analysing Dhunseri Tea & Industries (NSE:DTIL).

It's good to see that over the last twelve months Dhunseri Tea & Industries made a profit of ₹92.0m on revenue of ₹3.35b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Dhunseri Tea & Industries

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 discuss how unusual items have impacted Dhunseri Tea & Industries' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dhunseri Tea & Industries.

The Impact Of Unusual Items On Profit

To properly understand Dhunseri Tea & Industries' profit results, we need to consider the ₹125m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Dhunseri Tea & Industries took a rather significant hit from unusual items in the year to September 2020. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Dhunseri Tea & Industries' Profit Performance

As we mentioned previously, the Dhunseri Tea & Industries' profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Dhunseri Tea & Industries' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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 Dhunseri Tea & Industries, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 4 warning signs for Dhunseri Tea & Industries you should know about.

This note has only looked at a single factor that sheds light on the nature of Dhunseri Tea & Industries' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

If you’re looking to trade Dhunseri Tea & Industries, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.