Silicon Motion Technology's (NASDAQ:SIMO) Conservative Accounting Might Explain Soft Earnings

Silicon Motion Technology Corporation's (NASDAQ:SIMO) stock was strong despite it releasing a soft earnings report last week. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

See our latest analysis for Silicon Motion Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Silicon Motion Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$12m 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Silicon Motion Technology to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Silicon Motion Technology's Profit Performance

Because unusual items detracted from Silicon Motion Technology'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 Silicon Motion Technology'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. 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. If you want to do dive deeper into Silicon Motion Technology, you'd also look into what risks it is currently facing. For example - Silicon Motion Technology has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Silicon Motion Technology's 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. 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. 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.