Prime Oil Chemical Service's (TWSE:2904) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Prime Oil Chemical Service Corporation's (TWSE:2904) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for Prime Oil Chemical Service

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Prime Oil Chemical Service's profit was reduced by NT$6.3m, due to unusual items, over the last year. 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 Prime Oil Chemical Service to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Prime Oil Chemical Service.

Our Take On Prime Oil Chemical Service's Profit Performance

Unusual items (expenses) detracted from Prime Oil Chemical Service's earnings over the last year, but we might see an improvement next year. Because of this, we think Prime Oil Chemical Service'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. 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 Prime Oil Chemical Service, you'd also look into what risks it is currently facing. For example, Prime Oil Chemical Service has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Prime Oil Chemical Service'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. 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.