Are Taiwan TaxiLtd's (GTSM:2640) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in 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 Taiwan TaxiLtd (GTSM:2640).

While Taiwan TaxiLtd was able to generate revenue of NT$1.97b in the last twelve months, we think its profit result of NT$278.7m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years.

Check out our latest analysis for Taiwan TaxiLtd

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 discuss how unusual items have impacted Taiwan TaxiLtd'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 Taiwan TaxiLtd.

The Impact Of Unusual Items On Profit

To properly understand Taiwan TaxiLtd's profit results, we need to consider the NT$47m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Taiwan TaxiLtd to produce a higher profit next year, all else being equal.

Our Take On Taiwan TaxiLtd's Profit Performance

Because unusual items detracted from Taiwan TaxiLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Taiwan TaxiLtd's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 33% per year over the last three years. 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. While conducting our analysis, we found that Taiwan TaxiLtd has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of Taiwan TaxiLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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