Are YeaShin International Development's (GTSM:5213) Statutory Earnings A Good Guide To Its Underlying Profitability?

Broadly speaking, profitable businesses are less risky than 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding YeaShin International Development (GTSM:5213).

We like the fact that YeaShin International Development made a profit of NT$76.6m on its revenue of NT$3.80b, in the last year. We know some investors love those high revenue growth stocks, but we do like to look at profit, even if it is, perhaps, a bit old fashioned.

See our latest analysis for YeaShin International Development

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on YeaShin International Development's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of YeaShin International Development.

How Do Unusual Items Influence Profit?

To properly understand YeaShin International Development's profit results, we need to consider the NT$33m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If YeaShin International Development 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 YeaShin International Development's Profit Performance

Because unusual items detracted from YeaShin International Development's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that YeaShin International Development's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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 while earnings quality is important, it's equally important to consider the risks facing YeaShin International Development at this point in time. When we did our research, we found 3 warning signs for YeaShin International Development (2 are concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of YeaShin International Development'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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