Should You Use G-SHANK Enterprise's (TPE:2476) Statutory Earnings To Analyse It?

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. This article will consider whether G-SHANK Enterprise's (TPE:2476) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months G-SHANK Enterprise made a profit of NT$228.4m on revenue of NT$4.73b. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for G-SHANK Enterprise

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 G-SHANK Enterprise's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of G-SHANK Enterprise.

How Do Unusual Items Influence Profit?

For anyone who wants to understand G-SHANK Enterprise's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by NT$51m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If G-SHANK Enterprise doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On G-SHANK Enterprise's Profit Performance

Unusual items (expenses) detracted from G-SHANK Enterprise's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that G-SHANK Enterprise's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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 G-SHANK Enterprise at this point in time. To help with this, we've discovered 3 warning signs (1 is significant!) that you ought to be aware of before buying any shares in G-SHANK Enterprise.

Today we've zoomed in on a single data point to better understand the nature of G-SHANK Enterprise'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.

If you decide to trade G-SHANK Enterprise, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.