We Think You Should Be Aware Of Some Concerning Factors In Mesiniaga Berhad's (KLSE:MSNIAGA) Earnings

The stock price didn't jump after Mesiniaga Berhad (KLSE:MSNIAGA) posted decent earnings last week. We think that investors might be worried about some concerning underlying factors.

See our latest analysis for Mesiniaga Berhad

An Unusual Tax Situation

We can see that Mesiniaga Berhad received a tax benefit of RM864k. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mesiniaga Berhad.

Our Take On Mesiniaga Berhad's Profit Performance

As we have already discussed Mesiniaga Berhad reported that it received a tax benefit, rather than paying tax, in the last year. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Because of this, we think that it may be that Mesiniaga Berhad's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 16% in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Mesiniaga Berhad has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Mesiniaga Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.