Is There More To The Story Than Youngtek Electronics's (GTSM:6261) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Youngtek Electronics (GTSM:6261).

While Youngtek Electronics was able to generate revenue of NT$3.50b in the last twelve months, we think its profit result of NT$585.2m was more important. The chart below shows that revenue has been pretty flat over the last three years, but profit has increased.

See our latest analysis for Youngtek Electronics

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 discuss how unusual items have impacted Youngtek Electronics' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Youngtek Electronics.

How Do Unusual Items Influence Profit?

To properly understand Youngtek Electronics' profit results, we need to consider the NT$128m gain attributed to 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 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'. 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).

Our Take On Youngtek Electronics' Profit Performance

We'd posit that Youngtek Electronics' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Youngtek Electronics' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 28% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Youngtek Electronics, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Youngtek Electronics and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Youngtek Electronics' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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