Is There More To The Story Than Yi Jinn Industrial's (TPE:1457) Earnings Growth?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. This article will consider whether Yi Jinn Industrial's (TPE:1457) statutory profits are a good guide to its underlying earnings.

While Yi Jinn Industrial was able to generate revenue of NT$2.69b in the last twelve months, we think its profit result of NT$719.3m was more important. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

View our latest analysis for Yi Jinn Industrial

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 Yi Jinn Industrial'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 Yi Jinn Industrial.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Yi Jinn Industrial's profit received a boost of NT$1.1b in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Yi Jinn Industrial 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 Yi Jinn Industrial's Profit Performance

As we discussed above, we think the significant positive unusual item makes Yi Jinn Industrial'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Yi Jinn Industrial's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for Yi Jinn Industrial (1 is concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Yi Jinn Industrial'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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