The market seemed underwhelmed by last week's earnings announcement from Yulon Motor Company Ltd. (TPE:2201) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.
See our latest analysis for Yulon Motor
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Yulon Motor's profit was reduced by NT$1.8b, 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, after all, that's exactly what the accounting terminology implies. Yulon Motor took a rather significant hit from unusual items in the year to December 2020. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yulon Motor.
Our Take On Yulon Motor's Profit Performance
As we mentioned previously, the Yulon Motor's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Yulon Motor's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Yulon Motor has 3 warning signs (1 is a bit concerning!) that deserve your attention before going any further with your analysis.
This note has only looked at a single factor that sheds light on the nature of Yulon Motor'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. 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.
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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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About TWSE:2201
Yulon Motor
Manufactures and markets automobiles and related parts in Taiwan, China, and the Philippines.
Average dividend payer with acceptable track record.
