Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Tai Sin Electric (SGX:500).
While Tai Sin Electric was able to generate revenue of S$246.0m in the last twelve months, we think its profit result of S$19.7m was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.
Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Tai Sin Electric'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 Tai Sin Electric.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Tai Sin Electric's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from S$5.8m worth of unusual items. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Tai Sin Electric had a rather significant contribution from unusual items relative to its profit to December 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Our Take On Tai Sin Electric's Profit Performance
As we discussed above, we think the significant positive unusual item makes Tai Sin Electric'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Tai Sin Electric's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 30% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Tai Sin Electric at this point in time. Every company has risks, and we've spotted 3 warning signs for Tai Sin Electric (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 Tai Sin Electric's 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. 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.
When trading Tai Sin Electric or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.