Stock Analysis

Are Yung Zip Chemical Ind's (GTSM:4102) Statutory Earnings A Good Guide To Its Underlying Profitability?

TPEX:4102
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Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Yung Zip Chemical Ind (GTSM:4102).

While Yung Zip Chemical Ind was able to generate revenue of NT$439.3m in the last twelve months, we think its profit result of NT$29.9m was more important. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

See our latest analysis for Yung Zip Chemical Ind

earnings-and-revenue-history
GTSM:4102 Earnings and Revenue History December 22nd 2020

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 Yung Zip Chemical Ind's most recent profit results. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Yung Zip Chemical Ind's profit received a boost of NT$2.7m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Yung Zip Chemical Ind 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 Yung Zip Chemical Ind's Profit Performance

Arguably, Yung Zip Chemical Ind's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Yung Zip Chemical Ind's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 17% in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Yung Zip Chemical Ind (including 1 which is a bit concerning).

Today we've zoomed in on a single data point to better understand the nature of Yung Zip Chemical Ind's 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 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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