King Chou Marine Technology's (GTSM:4417) Earnings Are Growing But Is There More To The Story?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 King Chou Marine Technology's (GTSM:4417) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months King Chou Marine Technology made a profit of NT$357.6m on revenue of NT$2.73b. As you can see in the chart below, it has grown its profits over the last three years, despite the fact its revenue has been steady.

See our latest analysis for King Chou Marine Technology

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 discuss how unusual items have impacted King Chou Marine Technology's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of King Chou Marine Technology.

How Do Unusual Items Influence Profit?

For anyone who wants to understand King Chou Marine Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$201m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. King Chou Marine Technology had a rather significant contribution from unusual items relative to its profit to September 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 King Chou Marine Technology's Profit Performance

As previously mentioned, King Chou Marine Technology's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that King Chou Marine Technology's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 69% over the last three years. 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 King Chou Marine Technology at this point in time. In terms of investment risks, we've identified 3 warning signs with King Chou Marine Technology, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of King Chou Marine Technology'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. 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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