Does Manali Petrochemicals's (NSE:MANALIPETC) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Manali Petrochemicals (NSE:MANALIPETC).

It's good to see that over the last twelve months Manali Petrochemicals made a profit of ₹451.7m on revenue of ₹7.11b. 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 Manali Petrochemicals

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 Manali Petrochemicals' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Manali Petrochemicals.

The Impact Of Unusual Items On Profit

To properly understand Manali Petrochemicals' profit results, we need to consider the ₹184m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Manali Petrochemicals to produce a higher profit next year, all else being equal.

Our Take On Manali Petrochemicals' Profit Performance

Unusual items (expenses) detracted from Manali Petrochemicals' earnings over the last year, but we might see an improvement next year. Because of this, we think Manali Petrochemicals' earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Manali Petrochemicals has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Manali Petrochemicals' 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. 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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