Are Hwa Fong Rubber Ind's (TPE:2109) Statutory Earnings A Good Guide To Its Underlying Profitability?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Hwa Fong Rubber Ind (TPE:2109).

We like the fact that Hwa Fong Rubber Ind made a profit of NT$261.4m on its revenue of NT$4.82b, in the last year. The chart below shows that while revenue has fallen over the last three years, the company has moved from unprofitable to profitable.

Check out our latest analysis for Hwa Fong Rubber Ind

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 focus on the impact unusual items have had on Hwa Fong Rubber Ind's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hwa Fong Rubber Ind.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hwa Fong Rubber Ind's profit received a boost of NT$37m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Hwa Fong Rubber Ind doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Hwa Fong Rubber Ind's Profit Performance

Arguably, Hwa Fong Rubber Ind's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hwa Fong Rubber Ind's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you'd like to know more about Hwa Fong Rubber Ind as a business, it's important to be aware of any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Hwa Fong Rubber Ind.

This note has only looked at a single factor that sheds light on the nature of Hwa Fong Rubber Ind'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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