Are Punjab Chemicals and Crop Protection's (NSE:PUNJABCHEM) Statutory Earnings A Good Guide To Its Underlying Profitability?

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. This article will consider whether Punjab Chemicals and Crop Protection's (NSE:PUNJABCHEM) statutory profits are a good guide to its underlying earnings.

While Punjab Chemicals and Crop Protection was able to generate revenue of ₹5.54b in the last twelve months, we think its profit result of ₹239.2m was more important. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

View our latest analysis for Punjab Chemicals and Crop Protection

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 focus on the impact unusual items have had on Punjab Chemicals and Crop Protection's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Punjab Chemicals and Crop Protection.

How Do Unusual Items Influence Profit?

To properly understand Punjab Chemicals and Crop Protection's profit results, we need to consider the ₹59m 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. 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 Punjab Chemicals and Crop Protection's Profit Performance

We'd posit that Punjab Chemicals and Crop Protection's 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 Punjab Chemicals and Crop Protection's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 28% in 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. Every company has risks, and we've spotted 3 warning signs for Punjab Chemicals and Crop Protection you should know about.

Today we've zoomed in on a single data point to better understand the nature of Punjab Chemicals and Crop Protection'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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