Are Clinigen Group’s (LON:CLIN) Statutory Earnings A Good Guide To Its Underlying Profitability?

As a general rule, we think profitable companies are less risky than companies that lose money. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it’s not always clear whether statutory profits are a good guide, going forward. This article will consider whether Clinigen Group’s (LON:CLIN) statutory profits are a good guide to its underlying earnings.

It’s good to see that over the last twelve months Clinigen Group made a profit of UK£14.1m on revenue of UK£491.7m. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Clinigen Group

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AIM:CLIN Earnings and Revenue History August 12th 2020

Importantly, statutory profits are not always the best tool for understanding a company’s true earnings power, so it’s well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Clinigen Group’s most recent profit results. 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.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Clinigen Group’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by UK£37.1m 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. Clinigen Group took a rather significant hit from unusual items in the year to December 2019. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Clinigen Group’s Profit Performance

As we mentioned previously, the Clinigen Group’s profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Clinigen Group’s statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you’d like to know more about Clinigen Group as a business, it’s important to be aware of any risks it’s facing. For example, Clinigen Group has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Today we’ve zoomed in on a single data point to better understand the nature of Clinigen Group’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. 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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