Maywufa (TPE:1731) Is Growing Earnings But Are They A Good Guide?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Maywufa (TPE:1731).

It's good to see that over the last twelve months Maywufa made a profit of NT$155.0m on revenue of NT$1.04b. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

See our latest analysis for Maywufa

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Maywufa's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Maywufa.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Maywufa's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$28m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Maywufa's Profit Performance

We'd posit that Maywufa's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Maywufa's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 48% per annum growth in EPS for the last three. 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. If you'd like to know more about Maywufa as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Maywufa you should know about.

Today we've zoomed in on a single data point to better understand the nature of Maywufa'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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