Here's Why We Don't Think FOCI Fiber Optic Communications's (GTSM:3363) Statutory Earnings Reflect Its Underlying 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 FOCI Fiber Optic Communications' (GTSM:3363) statutory profits are a good guide to its underlying earnings.

We like the fact that FOCI Fiber Optic Communications made a profit of NT$104.8m on its revenue of NT$1.58b, in the last year. In the last few years its profit has fallen, although its revenue was steady, as you can see in the chart below.

Check out our latest analysis for FOCI Fiber Optic Communications

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 FOCI Fiber Optic Communications' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of FOCI Fiber Optic Communications.

The Impact Of Unusual Items On Profit

To properly understand FOCI Fiber Optic Communications' profit results, we need to consider the NT$51m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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, after all, that's exactly what the accounting terminology implies. FOCI Fiber Optic Communications 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 FOCI Fiber Optic Communications' Profit Performance

As we discussed above, we think the significant positive unusual item makes FOCI Fiber Optic Communications'earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that FOCI Fiber Optic Communications' underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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'd like to know more about FOCI Fiber Optic Communications as a business, it's important to be aware of any risks it's facing. For example, we've discovered 4 warning signs that you should run your eye over to get a better picture of FOCI Fiber Optic Communications.

This note has only looked at a single factor that sheds light on the nature of FOCI Fiber Optic Communications' 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. 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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