Investors Can Find Comfort In Kaimei Electronic's (TWSE:2375) Earnings Quality

The most recent earnings report from Kaimei Electronic Corp. (TWSE:2375) was disappointing for shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Check out our latest analysis for Kaimei Electronic

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kaimei Electronic's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by NT$66m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Kaimei Electronic to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kaimei Electronic.

Our Take On Kaimei Electronic's Profit Performance

Unusual items (expenses) detracted from Kaimei Electronic's earnings over the last year, but we might see an improvement next year. Because of this, we think Kaimei Electronic's earnings potential is at least as good as it seems, and maybe even better! 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 Kaimei Electronic, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Kaimei Electronic and you'll want to know about it.

This note has only looked at a single factor that sheds light on the nature of Kaimei Electronic'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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.