Stock Analysis

We Wouldn't Rely On Kretam Holdings Berhad's (KLSE:KRETAM) Statutory Earnings As A Guide

KLSE:KRETAM
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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 Kretam Holdings Berhad (KLSE:KRETAM).

We like the fact that Kretam Holdings Berhad made a profit of RM45.4m on its revenue of RM459.9m, in the last year.

View our latest analysis for Kretam Holdings Berhad

earnings-and-revenue-history
KLSE:KRETAM Earnings and Revenue History December 8th 2020

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

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kretam Holdings Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM10m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Kretam Holdings Berhad doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Kretam Holdings Berhad's Profit Performance

We'd posit that Kretam Holdings Berhad's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Kretam Holdings Berhad's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into Kretam Holdings Berhad, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Kretam Holdings Berhad and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Kretam Holdings Berhad'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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