Are Taiwan Fructose's (GTSM:4207) Statutory Earnings A Good Reflection Of Its Earnings Potential?

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 Taiwan Fructose's (GTSM:4207) statutory profits are a good guide to its underlying earnings.

We like the fact that Taiwan Fructose made a profit of NT$165.6m on its revenue of NT$3.98b, in the last year. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for Taiwan Fructose

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 Taiwan Fructose's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Taiwan Fructose.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Taiwan Fructose's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by NT$31m due 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 Taiwan Fructose to produce a higher profit next year, all else being equal.

Our Take On Taiwan Fructose's Profit Performance

Unusual items (expenses) detracted from Taiwan Fructose's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Taiwan Fructose's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 3 warning signs for Taiwan Fructose you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Taiwan Fructose'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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