We're Not Counting On India Motor Parts & Accessories (NSE:IMPAL) To Sustain Its Statutory Profitability

As a general rule, we think profitable companies are less risky than companies that lose money. 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 India Motor Parts & Accessories (NSE:IMPAL).

It's good to see that over the last twelve months India Motor Parts & Accessories made a profit of ₹402.9m on revenue of ₹4.66b. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

View our latest analysis for India Motor Parts & Accessories

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 India Motor Parts & Accessories' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of India Motor Parts & Accessories.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that India Motor Parts & Accessories' profit received a boost of ₹149m in unusual items, over the last year. 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. India Motor Parts & Accessories had a rather significant contribution from unusual items relative to its profit to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On India Motor Parts & Accessories' Profit Performance

As previously mentioned, India Motor Parts & Accessories' 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 India Motor Parts & Accessories' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 27% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing India Motor Parts & Accessories at this point in time. Every company has risks, and we've spotted 3 warning signs for India Motor Parts & Accessories you should know about.

Today we've zoomed in on a single data point to better understand the nature of India Motor Parts & Accessories' 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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