There May Be Underlying Issues With The Quality Of DKLS Industries Berhad's (KLSE:DKLS) Earnings

Investors were disappointed with DKLS Industries Berhad's (KLSE:DKLS) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

Check out our latest analysis for DKLS Industries Berhad

How Do Unusual Items Influence Profit?

Importantly, our data indicates that DKLS Industries Berhad's profit received a boost of RM9.4m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of DKLS Industries Berhad.

Our Take On DKLS Industries Berhad's Profit Performance

Arguably, DKLS Industries Berhad's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that DKLS Industries Berhad's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing DKLS Industries Berhad at this point in time. At Simply Wall St, we found 2 warning signs for DKLS Industries Berhad and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of DKLS Industries Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.