Should You Rely On Chunghwa Chemical Synthesis & Biotech's (TPE:1762) Earnings Growth?

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 Chunghwa Chemical Synthesis & Biotech's (TPE:1762) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Chunghwa Chemical Synthesis & Biotech made a profit of NT$470.3m on revenue of NT$1.26b. In the chart below, you can see that its profit and revenue have both grown over the last three years.

View our latest analysis for Chunghwa Chemical Synthesis & Biotech

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 focus on the impact unusual items have had on Chunghwa Chemical Synthesis & Biotech's statutory earnings. 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?

For anyone who wants to understand Chunghwa Chemical Synthesis & Biotech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$349m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Chunghwa Chemical Synthesis & Biotech's positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Chunghwa Chemical Synthesis & Biotech's Profit Performance

As we discussed above, we think the significant positive unusual item makes Chunghwa Chemical Synthesis & Biotech'searnings a poor guide to its underlying profitability. For this reason, we think that Chunghwa Chemical Synthesis & Biotech's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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 Chunghwa Chemical Synthesis & Biotech, you'd also look into what risks it is currently facing. To help with this, we've discovered 2 warning signs (1 is concerning!) that you ought to be aware of before buying any shares in Chunghwa Chemical Synthesis & Biotech.

Today we've zoomed in on a single data point to better understand the nature of Chunghwa Chemical Synthesis & Biotech'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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