We Wouldn't Rely On Taylor Devices's (NASDAQ:TAYD) Statutory Earnings As A Guide

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. In this article, we'll look at how useful this year's statutory profit is, when analysing Taylor Devices (NASDAQ:TAYD).

While Taylor Devices was able to generate revenue of US$25.4m in the last twelve months, we think its profit result of US$2.58m was more important. Happily, it has grown both its profit and revenue over the last three years (but not in the last year), as you can see in the chart below.

Check out our latest analysis for Taylor Devices

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Taylor Devices' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Taylor Devices.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Taylor Devices' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$1.5m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Taylor Devices had a rather significant contribution from unusual items relative to its profit to November 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Taylor Devices' Profit Performance

As we discussed above, we think the significant positive unusual item makes Taylor Devices'earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Taylor Devices' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 66% per annum growth in EPS for the last three. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for Taylor Devices (1 is significant) you should be familiar with.

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