Are I Yuan Precision Industrial's (GTSM:2235) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding I Yuan Precision Industrial (GTSM:2235).

We like the fact that I Yuan Precision Industrial made a profit of NT$66.6m on its revenue of NT$664.1m, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for I Yuan Precision Industrial

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 I Yuan Precision Industrial'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 I Yuan Precision Industrial.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that I Yuan Precision Industrial's profit was reduced by NT$13m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect I Yuan Precision Industrial to produce a higher profit next year, all else being equal.

Our Take On I Yuan Precision Industrial's Profit Performance

Unusual items (expenses) detracted from I Yuan Precision Industrial's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that I Yuan Precision Industrial's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. Case in point: We've spotted 4 warning signs for I Yuan Precision Industrial you should be mindful of and 1 of these is potentially serious.

Today we've zoomed in on a single data point to better understand the nature of I Yuan Precision Industrial's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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