RPG Life Sciences (NSE:RPGLIFE) Is Growing Earnings But Are They A Good Guide?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing RPG Life Sciences (NSE:RPGLIFE).

It's good to see that over the last twelve months RPG Life Sciences made a profit of ₹311.0m on revenue of ₹3.72b. In the chart below, you can see that its profit and revenue have both grown over the last three years.

Check out our latest analysis for RPG Life Sciences

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on RPG Life Sciences' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of RPG Life Sciences.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that RPG Life Sciences' profit was reduced by ₹54m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If RPG Life Sciences doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On RPG Life Sciences' Profit Performance

Unusual items (expenses) detracted from RPG Life Sciences' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that RPG Life Sciences' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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. You'd be interested to know, that we found 2 warning signs for RPG Life Sciences and you'll want to know about these bad boys.

This note has only looked at a single factor that sheds light on the nature of RPG Life Sciences' 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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