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. In this article, we'll look at how useful this year's statutory profit is, when analysing Kandi Technologies Group (NASDAQ:KNDI).
While Kandi Technologies Group was able to generate revenue of US$119.3m in the last twelve months, we think its profit result of US$7.02m was more important. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.
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 Kandi Technologies Group's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kandi Technologies Group.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Kandi Technologies Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$35m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Kandi Technologies Group's positive unusual items were quite significant relative to its profit in the year to June 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 Kandi Technologies Group's Profit Performance
As we discussed above, we think the significant positive unusual item makes Kandi Technologies Group'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Kandi Technologies Group's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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'd like to know more about Kandi Technologies Group as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Kandi Technologies Group, and understanding these should be part of your investment process.
This note has only looked at a single factor that sheds light on the nature of Kandi Technologies Group'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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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