Are Zhulian Corporation Berhad's (KLSE:ZHULIAN) 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. 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. This article will consider whether Zhulian Corporation Berhad's (KLSE:ZHULIAN) statutory profits are a good guide to its underlying earnings.

While Zhulian Corporation Berhad was able to generate revenue of RM166.2m in the last twelve months, we think its profit result of RM42.3m was more important. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Zhulian Corporation Berhad

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 Zhulian Corporation Berhad's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhulian Corporation Berhad.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zhulian Corporation Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by RM3.3m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Zhulian Corporation Berhad 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 Zhulian Corporation Berhad's Profit Performance

Unusual items (expenses) detracted from Zhulian Corporation Berhad's earnings over the last year, but we might see an improvement next year. Because of this, we think Zhulian Corporation Berhad's 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. 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 Zhulian Corporation Berhad at this point in time. While conducting our analysis, we found that Zhulian Corporation Berhad has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of Zhulian Corporation Berhad's 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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