Stock Analysis

Are Pou Chen's (TPE:9904) Statutory Earnings A Good Reflection Of Its Earnings Potential?

TWSE:9904
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Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Pou Chen's (TPE:9904) statutory profits are a good guide to its underlying earnings.

We like the fact that Pou Chen made a profit of NT$4.49b on its revenue of NT$261.0b, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Pou Chen

earnings-and-revenue-history
TSEC:9904 Earnings and Revenue History November 26th 2020

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 Pou Chen's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

To properly understand Pou Chen's profit results, we need to consider the NT$287m expense attributed 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. Assuming those unusual expenses don't come up again, we'd therefore expect Pou Chen to produce a higher profit next year, all else being equal.

Our Take On Pou Chen's Profit Performance

Unusual items (expenses) detracted from Pou Chen's earnings over the last year, but we might see an improvement next year. Because of this, we think Pou Chen's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. If you'd like to know more about Pou Chen as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Pou Chen you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Pou Chen'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. 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.

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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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