Does Cheng Uei Precision Industry's (TPE:2392) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Cheng Uei Precision Industry's (TPE:2392) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Cheng Uei Precision Industry made a profit of NT$2.12b on revenue of NT$90.8b.

See our latest analysis for Cheng Uei Precision Industry

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 Cheng Uei Precision Industry'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 Cheng Uei Precision Industry.

How Do Unusual Items Influence Profit?

To properly understand Cheng Uei Precision Industry's profit results, we need to consider the NT$596m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Cheng Uei Precision Industry to produce a higher profit next year, all else being equal.

Our Take On Cheng Uei Precision Industry's Profit Performance

Because unusual items detracted from Cheng Uei Precision Industry's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Cheng Uei Precision Industry's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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 want to do dive deeper into Cheng Uei Precision Industry, you'd also look into what risks it is currently facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Cheng Uei Precision Industry.

This note has only looked at a single factor that sheds light on the nature of Cheng Uei Precision Industry's 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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