We're Not Counting On Microtek International (TPE:2305) To Sustain Its Statutory Profitability

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing Microtek International (TPE:2305).

It's good to see that over the last twelve months Microtek International made a profit of NT$33.0m on revenue of NT$558.7m.

Check out our latest analysis for Microtek International

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 Microtek International'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 Microtek International.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Microtek International's profit received a boost of NT$93m in unusual items, over the last year. 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. Which is hardly surprising, given the name. We can see that Microtek International's positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Microtek International's Profit Performance

As previously mentioned, Microtek International's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Microtek International's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you'd like to know more about Microtek International as a business, it's important to be aware of any risks it's facing. Be aware that Microtek International is showing 3 warning signs in our investment analysis and 1 of those shouldn't be ignored...

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