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 Sinon's (TPE:1712) statutory profits are a good guide to its underlying earnings.
While Sinon was able to generate revenue of NT$17.5b in the last twelve months, we think its profit result of NT$764.4m was more important. One positive is that it has grown both its profit and its revenue, over the last few years.
Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Sinon'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 Sinon.
How Do Unusual Items Influence Profit?
To properly understand Sinon's profit results, we need to consider the NT$127m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Sinon 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 Sinon's Profit Performance
We'd posit that Sinon's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Sinon's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 18% in 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. If you'd like to know more about Sinon as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Sinon you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Sinon'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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