Following the solid earnings report from Chemical Industries (Far East) Limited (SGX:C05), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Chemical Industries (Far East)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from S$10.0m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Chemical Industries (Far East) had a rather significant contribution from unusual items relative to its profit to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chemical Industries (Far East).
Our Take On Chemical Industries (Far East)'s Profit Performance
As we discussed above, we think the significant positive unusual item makes Chemical Industries (Far East)'s earnings a poor guide to its underlying profitability. For this reason, we think that Chemical Industries (Far East)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 45% in the last year. 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 Chemical Industries (Far East) as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 5 warning signs for Chemical Industries (Far East) (of which 2 are significant!) you should know about.
Today we've zoomed in on a single data point to better understand the nature of Chemical Industries (Far East)'s profit. But there are plenty of other ways to inform your opinion of a company. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
