National Company for Glass Industries' (TADAWUL:2150) Earnings Are Of Questionable Quality

The National Company for Glass Industries' (TADAWUL:2150) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for National Company for Glass Industries

How Do Unusual Items Influence Profit?

To properly understand National Company for Glass Industries' profit results, we need to consider the ر.س11m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. National Company for Glass Industries had a rather significant contribution from unusual items relative to its profit to March 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of National Company for Glass Industries.

Our Take On National Company for Glass Industries' Profit Performance

As we discussed above, we think the significant positive unusual item makes National Company for Glass Industries' earnings a poor guide to its underlying profitability. For this reason, we think that National Company for Glass Industries' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. So while earnings quality is important, it's equally important to consider the risks facing National Company for Glass Industries at this point in time. Our analysis shows 2 warning signs for National Company for Glass Industries (1 is potentially serious!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of National Company for Glass Industries' 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 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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