Should You Use Lotus Pharmaceutical's (TPE:1795) Statutory Earnings To Analyse It?

By
Simply Wall St
Published
January 21, 2021

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Lotus Pharmaceutical's (TPE:1795) statutory profits are a good guide to its underlying earnings.

While Lotus Pharmaceutical was able to generate revenue of NT$10.4b in the last twelve months, we think its profit result of NT$848.2m 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.

Check out our latest analysis for Lotus Pharmaceutical

TSEC:1795 Earnings and Revenue History January 21st 2021

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 Lotus Pharmaceutical'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.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Lotus Pharmaceutical's profit was reduced by NT$180m, 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Lotus Pharmaceutical doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Lotus Pharmaceutical's Profit Performance

Unusual items (expenses) detracted from Lotus Pharmaceutical's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Lotus Pharmaceutical's statutory profit actually understates its earnings potential! And the EPS is up 41% over the last twelve months. 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. In terms of investment risks, we've identified 2 warning signs with Lotus Pharmaceutical, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Lotus Pharmaceutical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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