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 Axalta Coating Systems (NYSE:AXTA).
While Axalta Coating Systems was able to generate revenue of US$3.84b in the last twelve months, we think its profit result of US$76.6m was more important. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.
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 Axalta Coating Systems’ 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.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Axalta Coating Systems’ profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by US$126.8m due 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 that’s hardly a surprise given these line items are considered unusual. If Axalta Coating Systems 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 Axalta Coating Systems’ Profit Performance
Because unusual items detracted from Axalta Coating Systems’ 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 Axalta Coating Systems’ statutory profit actually understates its earnings potential! And on top of that, 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. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. For instance, we’ve identified 3 warning signs for Axalta Coating Systems (1 doesn’t sit too well with us) you should be familiar with.
Today we’ve zoomed in on a single data point to better understand the nature of Axalta Coating Systems’ 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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