Does Ethan Allen Interiors’s (NYSE:ETH) 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. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Ethan Allen Interiors (NYSE:ETH).

We like the fact that Ethan Allen Interiors made a profit of US$8.90m on its revenue of US$589.8m, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

Check out our latest analysis for Ethan Allen Interiors

earnings-and-revenue-history
NYSE:ETH Earnings and Revenue History September 22nd 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 focus on the impact unusual items have had on Ethan Allen Interiors’ statutory earnings. 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 Ethan Allen Interiors’ profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by US$2.4m due 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. If Ethan Allen Interiors 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 Ethan Allen Interiors’ Profit Performance

Because unusual items detracted from Ethan Allen Interiors’ 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 Ethan Allen Interiors’ statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. Case in point: We’ve spotted 2 warning signs for Ethan Allen Interiors you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Ethan Allen Interiors’ profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. 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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