There May Be Underlying Issues With The Quality Of Nankang Rubber TireLtd's (TWSE:2101) Earnings

Despite posting some strong earnings, the market for Nankang Rubber Tire Corp.,Ltd.'s (TWSE:2101) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Nankang Rubber TireLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Nankang Rubber TireLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$83m 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nankang Rubber TireLtd.

Our Take On Nankang Rubber TireLtd's Profit Performance

We'd posit that Nankang Rubber TireLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Nankang Rubber TireLtd's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Nankang Rubber TireLtd has 3 warning signs (2 are potentially serious!) 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 Nankang Rubber TireLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.