Why Tongtai Machine & Tool's (TWSE:4526) Shaky Earnings Are Just The Beginning Of Its Problems

Last week's earnings announcement from Tongtai Machine & Tool Co., Ltd. (TWSE:4526) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Tongtai Machine & Tool

How Do Unusual Items Influence Profit?

To properly understand Tongtai Machine & Tool's profit results, we need to consider the NT$229m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Tongtai Machine & Tool had a rather significant contribution from unusual items relative to its profit to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tongtai Machine & Tool.

Our Take On Tongtai Machine & Tool's Profit Performance

As we discussed above, we think the significant positive unusual item makes Tongtai Machine & Tool's earnings a poor guide to its underlying profitability. For this reason, we think that Tongtai Machine & Tool'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. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Tongtai Machine & Tool, you'd also look into what risks it is currently facing. To help with this, we've discovered 5 warning signs (2 don't sit too well with us!) that you ought to be aware of before buying any shares in Tongtai Machine & Tool.

This note has only looked at a single factor that sheds light on the nature of Tongtai Machine & Tool'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. 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.