Kwong Fong Industries' (TWSE:1416) Profits May Not Reveal Underlying Issues

The market shrugged off Kwong Fong Industries Corporation's (TWSE:1416) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

View our latest analysis for Kwong Fong Industries

How Do Unusual Items Influence Profit?

To properly understand Kwong Fong Industries' profit results, we need to consider the NT$3.1m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kwong Fong Industries.

Our Take On Kwong Fong Industries' Profit Performance

Arguably, Kwong Fong Industries' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Kwong Fong Industries' statutory profits are better than its underlying earnings power. The good news is that its earnings per share increased slightly 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. So while earnings quality is important, it's equally important to consider the risks facing Kwong Fong Industries at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Kwong Fong Industries.

This note has only looked at a single factor that sheds light on the nature of Kwong Fong Industries' 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. 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. 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.