Are Feedback Technology's (GTSM:8091) Statutory Earnings A Good Reflection Of Its Earnings Potential?

As a general rule, we think profitable companies are less risky than companies that lose money. 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 Feedback Technology's (GTSM:8091) statutory profits are a good guide to its underlying earnings.

While Feedback Technology was able to generate revenue of NT$1.25b in the last twelve months, we think its profit result of NT$146.4m was more important. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Feedback Technology

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 Feedback Technology's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Feedback Technology.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Feedback Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by NT$28m due 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 that's hardly a surprise given these line items are considered unusual. If Feedback Technology 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 Feedback Technology's Profit Performance

Unusual items (expenses) detracted from Feedback Technology's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Feedback Technology's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Feedback Technology has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Feedback Technology's 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. 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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