Here's Why We Don't Think Atta Global Group Berhad's (KLSE:ATTA) Statutory Earnings Reflect Its Underlying Earnings Potential

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Atta Global Group Berhad (KLSE:ATTA).

It's good to see that over the last twelve months Atta Global Group Berhad made a profit of RM5.36m on revenue of RM76.5m. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Atta Global Group 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 discuss how unusual items have impacted Atta Global Group Berhad's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Atta Global Group Berhad.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Atta Global Group Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM23m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that Atta Global Group Berhad's positive unusual items were quite significant relative to its profit in the year to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Atta Global Group Berhad's Profit Performance

As we discussed above, we think the significant positive unusual item makes Atta Global Group Berhad'searnings a poor guide to its underlying profitability. For this reason, we think that Atta Global Group Berhad's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 7.3% in 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. If you'd like to know more about Atta Global Group Berhad as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Atta Global Group Berhad (including 1 which can't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Atta Global Group 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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