Daily Polymer (GTSM:4716) Is Growing Earnings But Are They A Good Guide?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Daily Polymer's (GTSM:4716) statutory profits are a good guide to its underlying earnings.

While Daily Polymer was able to generate revenue of NT$852.9m in the last twelve months, we think its profit result of NT$47.3m was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

View our latest analysis for Daily Polymer

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

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Daily Polymer's profit received a boost of NT$5.6m in unusual items, over the last year. 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. If Daily Polymer doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Daily Polymer's Profit Performance

Arguably, Daily Polymer's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Daily Polymer's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 want to do dive deeper into Daily Polymer, you'd also look into what risks it is currently facing. For example, Daily Polymer has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Daily Polymer'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. 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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