Shareholders Can Be Confident That Shinkong Synthetic Fibers' (TWSE:1409) Earnings Are High Quality

Shinkong Synthetic Fibers Corporation's (TWSE:1409) earnings announcement last week was disappointing for investors, despite the decent profit numbers. We have done some analysis and have found some comforting factors beneath the profit numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shinkong Synthetic Fibers' profit was reduced by NT$680m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Shinkong Synthetic Fibers doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shinkong Synthetic Fibers.

Our Take On Shinkong Synthetic Fibers' Profit Performance

Because unusual items detracted from Shinkong Synthetic Fibers' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Shinkong Synthetic Fibers' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Shinkong Synthetic Fibers is showing 3 warning signs in our investment analysis and 2 of those can't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Shinkong Synthetic Fibers' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.