Stock Analysis

We Wouldn't Rely On Morn Sun Feed Mill's (GTSM:1240) Statutory Earnings As A Guide

TPEX:1240
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It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Morn Sun Feed Mill's (GTSM:1240) statutory profits are a good guide to its underlying earnings.

While Morn Sun Feed Mill was able to generate revenue of NT$2.18b in the last twelve months, we think its profit result of NT$140.7m was more important. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for Morn Sun Feed Mill

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GTSM:1240 Earnings and Revenue History January 18th 2021

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Morn Sun Feed Mill's most recent profit results. 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 Morn Sun Feed Mill's profit results, we need to consider the NT$63m 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'. We can see that Morn Sun Feed Mill's positive unusual items were quite significant relative to its profit in the year 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 Morn Sun Feed Mill's Profit Performance

As we discussed above, we think the significant positive unusual item makes Morn Sun Feed Mill'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Morn Sun Feed Mill's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Morn Sun Feed Mill you should know about.

This note has only looked at a single factor that sheds light on the nature of Morn Sun Feed Mill'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. 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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