Liberty Shoes's (NSE:LIBERTSHOE) Earnings Are Growing But Is There More To The Story?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Liberty Shoes' (NSE:LIBERTSHOE) statutory profits are a good guide to its underlying earnings.

We like the fact that Liberty Shoes made a profit of ₹110.0m on its revenue of ₹6.52b, 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 Liberty Shoes

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 focus on the impact unusual items have had on Liberty Shoes' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Liberty Shoes.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Liberty Shoes' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹44m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Liberty Shoes doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Liberty Shoes' Profit Performance

We'd posit that Liberty Shoes' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Liberty Shoes' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 want to do dive deeper into Liberty Shoes, you'd also look into what risks it is currently facing. For instance, we've identified 5 warning signs for Liberty Shoes (2 don't sit too well with us) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Liberty Shoes' 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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