We're Not So Sure You Should Rely on Biostar Microtech International's (TPE:2399) Statutory Earnings

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Biostar Microtech International (TPE:2399).

While Biostar Microtech International was able to generate revenue of NT$2.56b in the last twelve months, we think its profit result of NT$206.9m was more important.

Check out our latest analysis for Biostar Microtech International

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 Biostar Microtech International's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Biostar Microtech International.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Biostar Microtech International's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$121m worth of unusual items. 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. And, after all, that's exactly what the accounting terminology implies. We can see that Biostar Microtech 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 Biostar Microtech International's Profit Performance

As we discussed above, we think the significant positive unusual item makes Biostar Microtech International'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Biostar Microtech 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. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for Biostar Microtech International and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Biostar Microtech 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. 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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