Here's Why We Don't Think Chicony Electronics's (TPE:2385) Statutory Earnings Reflect Its Underlying Earnings Potential

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Chicony Electronics (TPE:2385).

We like the fact that Chicony Electronics made a profit of NT$5.47b on its revenue of NT$94.3b, in the last year. One positive is that it has grown both its profit and its revenue, over the last few years.

Check out our latest analysis for Chicony Electronics

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Chicony 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.

How Do Unusual Items Influence Profit?

To properly understand Chicony Electronics' profit results, we need to consider the NT$1.9b gain attributed to unusual items. 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. Which is hardly surprising, given the name. If Chicony 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 Chicony Electronics' Profit Performance

Arguably, Chicony Electronics' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Chicony Electronics' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 30% per annum growth in EPS for the last three. 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 want to do dive deeper into Chicony Electronics, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Chicony Electronics, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Chicony Electronics' 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. 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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