Published: 12th Nov 2024
By: Value Research
These are one-time boosts that can inflate profitability, distorting a company’s financial picture and misleading investors. Such one-time profits can arise from unusual events, like selling assets, debt restructuring, or other non-recurring income sources.
Let’s say ABC Bakery reported a profit after tax of Rs 50 lakh in 2021, and in 2022, this jumped to Rs 75 lakh—an impressive 50% YoY increase. This will signal financial strength at the first instance, but what if it was due to a non-core business gain?
ABC Bakery actually struggled with demand, even selling off multiple outlets for Rs 80 lakh in 2022. The money from this one-time sale was booked as profit, hence without it, they actually incurred losses that year!
Scrutinise a company's financials by looking beyond surface profitability. Verify where earnings are truly coming from. If a significant portion of earnings comes from outside the core business, proceed with caution.
Our full story has a list of Indian companies whose cumulative profits turned into losses when exceptional items were removed between FY19-23. Read it from the link below.
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