Should You Rely On Fwusow Industry's (TPE:1219) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Fwusow Industry (TPE:1219).

We like the fact that Fwusow Industry made a profit of NT$605.9m on its revenue of NT$12.2b, in the last year. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for Fwusow Industry

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 focus on the impact unusual items have had on Fwusow Industry's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Fwusow Industry.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Fwusow Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$435m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Fwusow Industry's positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Fwusow Industry's Profit Performance

As previously mentioned, Fwusow Industry's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Fwusow Industry's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Fwusow Industry as a business, it's important to be aware of any risks it's facing. When we did our research, we found 2 warning signs for Fwusow Industry (1 is concerning!) that we believe deserve your full attention.

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