We're Not So Sure You Should Rely on Bawan's (TADAWUL:1302) Statutory Earnings

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. This article will consider whether Bawan's (TADAWUL:1302) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Bawan made a profit of ر.س65.5m on revenue of ر.س2.30b.

Check out our latest analysis for Bawan

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 discuss how unusual items have impacted Bawan'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 Bawan.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Bawan's profit received a boost of ر.س16m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Bawan doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Bawan's Profit Performance

We'd posit that Bawan's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Bawan's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Bawan, you'd also look into what risks it is currently facing. To help with this, we've discovered 5 warning signs (2 are potentially serious!) that you ought to be aware of before buying any shares in Bawan.

This note has only looked at a single factor that sheds light on the nature of Bawan's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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