InnoTek's (SGX:M14) Performance Is Even Better Than Its Earnings Suggest

InnoTek Limited's (SGX:M14) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for InnoTek

How Do Unusual Items Influence Profit?

To properly understand InnoTek's profit results, we need to consider the S$981k expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If InnoTek doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of InnoTek.

Our Take On InnoTek's Profit Performance

Because unusual items detracted from InnoTek's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that InnoTek's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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 InnoTek at this point in time. For instance, we've identified 3 warning signs for InnoTek (2 can't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of InnoTek'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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.