Are United Nilgiri Tea Estates' (NSE:UNITEDTEA) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
February 09, 2021
NSEI:UNITEDTEA

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding United Nilgiri Tea Estates (NSE:UNITEDTEA).

It's good to see that over the last twelve months United Nilgiri Tea Estates made a profit of ₹127.2m on revenue of ₹663.1m. One positive is that it has grown both its profit and its revenue, over the last few years.

Check out our latest analysis for United Nilgiri Tea Estates

earnings-and-revenue-history
NSEI:UNITEDTEA Earnings and Revenue History February 9th 2021

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on United Nilgiri Tea Estates' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of United Nilgiri Tea Estates.

How Do Unusual Items Influence Profit?

To properly understand United Nilgiri Tea Estates' profit results, we need to consider the ₹11m gain attributed to 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. Which is hardly surprising, given the name. If United Nilgiri Tea Estates doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On United Nilgiri Tea Estates' Profit Performance

We'd posit that United Nilgiri Tea Estates' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that United Nilgiri Tea Estates' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 19% per annum growth in EPS for the last three. 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. If you'd like to know more about United Nilgiri Tea Estates as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of United Nilgiri Tea Estates.

This note has only looked at a single factor that sheds light on the nature of United Nilgiri Tea Estates' 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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