Should You Use Middle East Company for Manufacturing and Producing Paper's (TADAWUL:1202) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. This article will consider whether Middle East Company for Manufacturing and Producing Paper's (TADAWUL:1202) statutory profits are a good guide to its underlying earnings.

While Middle East Company for Manufacturing and Producing Paper was able to generate revenue of ر.س687.4m in the last twelve months, we think its profit result of ر.س19.5m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Middle East Company for Manufacturing and Producing Paper

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Middle East Company for Manufacturing and Producing Paper'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 Middle East Company for Manufacturing and Producing Paper.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Middle East Company for Manufacturing and Producing Paper's profit received a boost of ر.س6.5m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Middle East Company for Manufacturing and Producing Paper's Profit Performance

Arguably, Middle East Company for Manufacturing and Producing Paper's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Middle East Company for Manufacturing and Producing Paper's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 31% in 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. 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 3 warning signs for Middle East Company for Manufacturing and Producing Paper (of which 2 can't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Middle East Company for Manufacturing and Producing Paper'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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