Asahi Songwon Colors (NSE:ASAHISONG) Is Growing Earnings But Are They A Good Guide?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Asahi Songwon Colors' (NSE:ASAHISONG) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Asahi Songwon Colors made a profit of ₹268.6m on revenue of ₹2.51b. The chart below shows that revenue has been pretty flat over the last three years, but profit has increased.

View our latest analysis for Asahi Songwon Colors

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Asahi Songwon Colors' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Asahi Songwon Colors.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Asahi Songwon Colors' profit received a boost of ₹45m in unusual items, over the last year. 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 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).

Our Take On Asahi Songwon Colors' Profit Performance

Arguably, Asahi Songwon Colors' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Asahi Songwon Colors' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 25% 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. So while earnings quality is important, it's equally important to consider the risks facing Asahi Songwon Colors at this point in time. Case in point: We've spotted 2 warning signs for Asahi Songwon Colors you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Asahi Songwon Colors' 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.

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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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