We're Not Counting On Davicom Semiconductor (TPE:3094) 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. 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 Davicom Semiconductor (TPE:3094).

It's good to see that over the last twelve months Davicom Semiconductor made a profit of NT$41.2m on revenue of NT$241.1m. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

Check out our latest analysis for Davicom Semiconductor

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 discuss how unusual items have impacted Davicom Semiconductor'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 Davicom Semiconductor.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Davicom Semiconductor's profit received a boost of NT$14m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Davicom Semiconductor had a rather significant contribution from unusual items relative to its profit 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 Davicom Semiconductor's Profit Performance

As we discussed above, we think the significant positive unusual item makes Davicom Semiconductor'searnings a poor guide to its underlying profitability. For this reason, we think that Davicom Semiconductor's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 35% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Davicom Semiconductor, you'd also look into what risks it is currently facing. For example, Davicom Semiconductor has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Davicom Semiconductor's profit. But there are plenty of other ways to inform your opinion of a company. 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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