We're Not Counting On Chuwa Wool Industry (Taiwan) (TPE:1439) To Sustain Its Statutory Profitability

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Chuwa Wool Industry (Taiwan)'s (TPE:1439) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Chuwa Wool Industry (Taiwan) made a profit of NT$40.2m on revenue of NT$124.1m.

View our latest analysis for Chuwa Wool Industry (Taiwan)

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Chuwa Wool Industry (Taiwan)'s most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chuwa Wool Industry (Taiwan).

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Chuwa Wool Industry (Taiwan)'s profit received a boost of NT$1.1b 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 that's as you'd expect, given these boosts are described as 'unusual'. We can see that Chuwa Wool Industry (Taiwan)'s positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Chuwa Wool Industry (Taiwan)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Chuwa Wool Industry (Taiwan)'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Chuwa Wool Industry (Taiwan)'s underlying earnings power is lower than its statutory profit. Sadly, its EPS was down 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 6 warning signs for Chuwa Wool Industry (Taiwan) you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Chuwa Wool Industry (Taiwan)'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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