Should You Use Depo Auto Parts Industrial's (TPE:6605) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Depo Auto Parts Industrial's (TPE:6605) statutory profits are a good guide to its underlying earnings.

We like the fact that Depo Auto Parts Industrial made a profit of NT$428.7m on its revenue of NT$14.4b, 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.

See our latest analysis for Depo Auto Parts Industrial

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Depo Auto Parts 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 Depo Auto Parts Industrial.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Depo Auto Parts Industrial's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$100m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Depo Auto Parts Industrial 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 Depo Auto Parts Industrial's Profit Performance

We'd posit that Depo Auto Parts Industrial's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Depo Auto Parts Industrial's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over 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. If you'd like to know more about Depo Auto Parts Industrial as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 5 warning signs we've spotted with Depo Auto Parts Industrial (including 2 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Depo Auto Parts Industrial'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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