Are Sanyang Motor's (TPE:2206) Statutory Earnings A Good Reflection Of Its Earnings Potential?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Sanyang Motor (TPE:2206).

It's good to see that over the last twelve months Sanyang Motor made a profit of NT$1.65b on revenue of NT$36.5b. In the chart below, you can see that its profit and revenue have both grown over the last three years.

View our latest analysis for Sanyang Motor

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 Sanyang Motor's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sanyang Motor.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sanyang Motor's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$241m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Sanyang Motor's Profit Performance

Arguably, Sanyang Motor's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sanyang Motor's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Sanyang Motor as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 4 warning signs for Sanyang Motor you should be mindful of and 2 of these are potentially serious.

This note has only looked at a single factor that sheds light on the nature of Sanyang Motor'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. 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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