It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Tropicana Corporation Berhad's (KLSE:TROP) statutory profits are a good guide to its underlying earnings.
While Tropicana Corporation Berhad was able to generate revenue of RM1.08b in the last twelve months, we think its profit result of RM262.8m was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.
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 Tropicana 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 Tropicana Corporation Berhad.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Tropicana Corporation Berhad's profit received a boost of RM323m in unusual items, over the last year. 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 that's as you'd expect, given these boosts are described as 'unusual'. Tropicana Corporation Berhad had a rather significant contribution from unusual items relative to its profit to September 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 Tropicana Corporation Berhad's Profit Performance
As we discussed above, we think the significant positive unusual item makes Tropicana Corporation Berhad'searnings a poor guide to its underlying profitability. For this reason, we think that Tropicana Corporation 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. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Tropicana Corporation Berhad (of which 1 is a bit concerning!) you should know about.
Today we've zoomed in on a single data point to better understand the nature of Tropicana Corporation 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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