Does Autoliv’s (NYSE:ALV) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Autoliv (NYSE:ALV).

It’s good to see that over the last twelve months Autoliv made a profit of US$424.9m on revenue of US$8.22b. Below, you can see that both its revenue and its profit have fallen over the last three years.

Check out our latest analysis for Autoliv

NYSE:ALV Earnings and Revenue History July 3rd 2020
NYSE:ALV Earnings and Revenue History July 3rd 2020

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Autoliv’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

To properly understand Autoliv’s profit results, we need to consider the US$265m expense attributed 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. If Autoliv doesn’t see those unusual expenses repeat, then all else being equal we’d expect its profit to increase over the coming year.

Our Take On Autoliv’s Profit Performance

Unusual items (expenses) detracted from Autoliv’s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Autoliv’s statutory profit actually understates its earnings potential! And the EPS is up 30% over the last twelve months. 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 want to do dive deeper into Autoliv, you’d also look into what risks it is currently facing. You’d be interested to know, that we found 3 warning signs for Autoliv and you’ll want to know about them.

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