We're Not Counting On Pan Asia Chemical (GTSM:4707) To Sustain Its Statutory Profitability

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing Pan Asia Chemical (GTSM:4707).

We like the fact that Pan Asia Chemical made a profit of NT$253.0m on its revenue of NT$1.53b, in the last year. Happily, it has grown both its profit and revenue over the last three years (but not in the last year), as you can see in the chart below.

See our latest analysis for Pan Asia Chemical

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 discuss how unusual items have impacted Pan Asia Chemical's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Pan Asia Chemical.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Pan Asia Chemical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$13m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. Pan Asia Chemical had a rather significant contribution from unusual items relative to its profit 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 Pan Asia Chemical's Profit Performance

As we discussed above, we think the significant positive unusual item makes Pan Asia Chemical'searnings a poor guide to its underlying profitability. For this reason, we think that Pan Asia Chemical's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 45% over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Pan Asia Chemical at this point in time. At Simply Wall St, we found 1 warning sign for Pan Asia Chemical and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Pan Asia Chemical's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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