Does Equatorial Pará Distribuidora de Energia's (BVMF:EQPA3) Statutory Profit Adequately Reflect Its Underlying Profit?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Equatorial Pará Distribuidora de Energia's (BVMF:EQPA3) statutory profits are a good guide to its underlying earnings.

We like the fact that Equatorial Pará Distribuidora de Energia made a profit of R$527.2m on its revenue of R$5.60b, in the last year. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

View our latest analysis for Equatorial Pará Distribuidora de Energia

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Equatorial Pará Distribuidora de Energia's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Equatorial Pará Distribuidora de Energia.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Equatorial Pará Distribuidora de Energia's profit was reduced by R$177.9m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Equatorial Pará Distribuidora de Energia to produce a higher profit next year, all else being equal.

Our Take On Equatorial Pará Distribuidora de Energia's Profit Performance

Because unusual items detracted from Equatorial Pará Distribuidora de Energia's 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 Equatorial Pará Distribuidora de Energia's statutory profit actually understates its earnings potential! And the EPS is up 62% annually, over the last three years. 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 Equatorial Pará Distribuidora de Energia, you'd also look into what risks it is currently facing. For example, Equatorial Pará Distribuidora de Energia has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Equatorial Pará Distribuidora de Energia's 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 that insiders are buying.

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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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