We're Not So Sure You Should Rely on Taiwan Line Tek Electronic's (TPE:2462) Statutory Earnings

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Taiwan Line Tek Electronic (TPE:2462).

We like the fact that Taiwan Line Tek Electronic made a profit of NT$151.8m on its revenue of NT$4.48b, in the last year.

Check out our latest analysis for Taiwan Line Tek Electronic

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Taiwan Line Tek Electronic's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Taiwan Line Tek Electronic.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Taiwan Line Tek Electronic's profit received a boost of NT$74m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Taiwan Line Tek Electronic's positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Taiwan Line Tek Electronic's Profit Performance

As we discussed above, we think the significant positive unusual item makes Taiwan Line Tek Electronic'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Taiwan Line Tek Electronic's underlying earnings power is lower 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. So while earnings quality is important, it's equally important to consider the risks facing Taiwan Line Tek Electronic at this point in time. When we did our research, we found 2 warning signs for Taiwan Line Tek Electronic (1 can't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Taiwan Line Tek Electronic'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. 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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