We're Not Counting On Nan Juen International (GTSM:6584) To Sustain Its Statutory Profitability

By
Simply Wall St
Published
February 03, 2021
TPEX:6584
Source: Shutterstock

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Nan Juen International's (GTSM:6584) statutory profits are a good guide to its underlying earnings.

We like the fact that Nan Juen International made a profit of NT$40.7m on its revenue of NT$1.59b, 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.

View our latest analysis for Nan Juen International

earnings-and-revenue-history
GTSM:6584 Earnings and Revenue History February 4th 2021

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

The Impact Of Unusual Items On Profit

For anyone who wants to understand Nan Juen International's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$64m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Nan Juen International's positive unusual items were quite significant relative to its profit in the year to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Nan Juen International's Profit Performance

As we discussed above, we think the significant positive unusual item makes Nan Juen International'searnings a poor guide to its underlying profitability. For this reason, we think that Nan Juen International's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 4 warning signs for Nan Juen International you should be mindful of and 2 of these are significant.

Today we've zoomed in on a single data point to better understand the nature of Nan Juen International's profit. But there are plenty of other ways to inform your opinion of a company. 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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