Should You Use Asian Pac Holdings Berhad's (KLSE:ASIAPAC) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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. This article will consider whether Asian Pac Holdings Berhad's (KLSE:ASIAPAC) statutory profits are a good guide to its underlying earnings.

While Asian Pac Holdings Berhad was able to generate revenue of RM137.0m in the last twelve months, we think its profit result of RM31.4m was more important. 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 Asian Pac Holdings Berhad

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Asian Pac 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 Asian Pac Holdings Berhad.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Asian Pac Holdings Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM6.4m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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).

Our Take On Asian Pac Holdings Berhad's Profit Performance

We'd posit that Asian Pac 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 Asian Pac Holdings Berhad's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 want to do dive deeper into Asian Pac Holdings Berhad, you'd also look into what risks it is currently facing. To that end, you should learn about the 5 warning signs we've spotted with Asian Pac Holdings Berhad (including 2 which make us uncomfortable).

This note has only looked at a single factor that sheds light on the nature of Asian Pac Holdings 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 that insiders are buying.

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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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