Does Territorial Generating Company No. 1's (MCX:TGKA) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Territorial Generating Company No. 1's (MCX:TGKA) statutory profits are a good guide to its underlying earnings.

We like the fact that Territorial Generating Company No. 1 made a profit of ₽4.14b on its revenue of ₽89.1b, in the last year. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

Check out our latest analysis for Territorial Generating Company No. 1

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Territorial Generating Company No. 1'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 Territorial Generating Company No. 1's profit was reduced by ₽6.6b, 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2020, Territorial Generating Company No. 1 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 Territorial Generating Company No. 1's Profit Performance

As we mentioned previously, the Territorial Generating Company No. 1's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Territorial Generating Company No. 1's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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. So while earnings quality is important, it's equally important to consider the risks facing Territorial Generating Company No. 1 at this point in time. Case in point: We've spotted 4 warning signs for Territorial Generating Company No. 1 you should be mindful of and 1 of them is potentially serious.

Today we've zoomed in on a single data point to better understand the nature of Territorial Generating Company No. 1'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. 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 that insiders are buying to be useful.

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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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