Fineotex Chemical's (NSE:FCL) Solid Profits Have Weak Fundamentals

Fineotex Chemical Limited's (NSE:FCL) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Fineotex Chemical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Fineotex Chemical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹136m worth of 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. 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. We can see that Fineotex Chemical's positive unusual items were quite significant relative to its profit in the year to March 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Fineotex Chemical.

Our Take On Fineotex Chemical's Profit Performance

As previously mentioned, Fineotex Chemical's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Fineotex Chemical's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 want to do dive deeper into Fineotex Chemical, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Fineotex Chemical and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Fineotex Chemical'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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