Impressive Earnings May Not Tell The Whole Story For Formosan Union Chemical (TWSE:1709)

Despite posting some strong earnings, the market for Formosan Union Chemical Corp.'s (TWSE:1709) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Formosan Union Chemical

How Do Unusual Items Influence Profit?

For anyone who wants to understand Formosan Union Chemical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$125m 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Formosan Union Chemical doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Formosan Union Chemical.

Our Take On Formosan Union Chemical's Profit Performance

Arguably, Formosan Union Chemical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Formosan Union Chemical's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 35% in 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. For example - Formosan Union Chemical has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Formosan Union Chemical's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.