Are Elsoft Research Berhad's (KLSE:ELSOFT) 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. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Elsoft Research Berhad (KLSE:ELSOFT).

While Elsoft Research Berhad was able to generate revenue of RM19.5m in the last twelve months, we think its profit result of RM7.08m was more important. 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 Elsoft Research 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 Elsoft Research Berhad's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Elsoft Research Berhad's profit was reduced by RM1.4m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2020, Elsoft Research Berhad had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Elsoft Research Berhad's Profit Performance

As we discussed above, we think the significant unusual expense will make Elsoft Research Berhad's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Elsoft Research Berhad's statutory profit actually understates its earnings potential! 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. If you want to do dive deeper into Elsoft Research Berhad, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Elsoft Research Berhad and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Elsoft Research Berhad's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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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