Garware Hi-Tech Films (NSE:GRWRHITECH) Strong Profits May Be Masking Some Underlying Issues

Garware Hi-Tech Films Limited's (NSE:GRWRHITECH) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Garware Hi-Tech Films' profit received a boost of ₹237m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Garware Hi-Tech Films doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Garware Hi-Tech Films.

Our Take On Garware Hi-Tech Films' Profit Performance

We'd posit that Garware Hi-Tech Films' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Garware Hi-Tech Films' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Garware Hi-Tech Films as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Garware Hi-Tech Films and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Garware Hi-Tech Films' 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. 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. 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.