Does Mesaieed Petrochemical Holding Company Q.P.S.C's (DSM:MPHC) Statutory Profit Adequately Reflect Its Underlying Profit?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC).

While Mesaieed Petrochemical Holding Company Q.P.S.C was able to generate revenue of ر.ق835.4m in the last twelve months, we think its profit result of ر.ق1.02b was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

Check out our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article, will discuss how a tax benefit impacted Mesaieed Petrochemical Holding Company Q.P.S.C'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 Mesaieed Petrochemical Holding Company Q.P.S.C.

An Unusual Tax Situation

We can see that Mesaieed Petrochemical Holding Company Q.P.S.C received a tax benefit of ر.ق202m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! 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. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Mesaieed Petrochemical Holding Company Q.P.S.C's Profit Performance

Mesaieed Petrochemical Holding Company Q.P.S.C reported that it received a tax benefit, rather than paid tax, in its last report. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Therefore, it seems possible to us that Mesaieed Petrochemical Holding Company Q.P.S.C's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. 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 2 warning signs for Mesaieed Petrochemical Holding Company Q.P.S.C (of which 1 is a bit unpleasant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Mesaieed Petrochemical Holding Company Q.P.S.C'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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