Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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 Music Broadcast (NSE:RADIOCITY).
While Music Broadcast was able to generate revenue of ₹2.48b in the last twelve months, we think its profit result of ₹282.1m was more important. The chart below shows that both revenue and profit have declined over the last three years.
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 discuss how unusual items have impacted Music Broadcast’s most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Music Broadcast.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Music Broadcast’s profit was reduced by ₹67m, due to unusual items, over the last year. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Music Broadcast to produce a higher profit next year, all else being equal.
Our Take On Music Broadcast’s Profit Performance
Unusual items (expenses) detracted from Music Broadcast’s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Music Broadcast’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. Keep in mind, when it comes to analysing a stock it’s worth noting the risks involved. You’d be interested to know, that we found 3 warning signs for Music Broadcast and you’ll want to know about these bad boys.
This note has only looked at a single factor that sheds light on the nature of Music Broadcast’s 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. 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.
Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.
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. Thank you for reading.