Indofood Agri Resources Ltd. (SGX:5JS) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

See our latest analysis for Indofood Agri Resources

How Do Unusual Items Influence Profit?

To properly understand Indofood Agri Resources' profit results, we need to consider the Rp380b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Indofood Agri Resources to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Indofood Agri Resources.

Our Take On Indofood Agri Resources' Profit Performance

Because unusual items detracted from Indofood Agri Resources' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Indofood Agri Resources' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Indofood Agri Resources' balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Indofood Agri Resources' 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 with high insider ownership.

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