Are Everlight Electronics's (TPE:2393) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Everlight Electronics (TPE:2393).

We like the fact that Everlight Electronics made a profit of NT$1.14b on its revenue of NT$21.5b, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Everlight Electronics

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 focus on the impact unusual items have had on Everlight Electronics' statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Everlight Electronics' profit received a boost of NT$94m in unusual items, over the last year. 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. And, after all, that's exactly what the accounting terminology implies. If Everlight Electronics doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Everlight Electronics' Profit Performance

Arguably, Everlight Electronics' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Everlight Electronics' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 54% EPS growth 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 Everlight Electronics at this point in time. Case in point: We've spotted 1 warning sign for Everlight Electronics you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Everlight 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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