Should You Use FFI Holdings’s (ASX:FFI) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether FFI Holdings’ (ASX:FFI) statutory profits are a good guide to its underlying earnings.

While FFI Holdings was able to generate revenue of AU$35.4m in the last twelve months, we think its profit result of AU$3.44m was more important. Happily, it has grown both its profit and revenue over the last three years (though we note its revenue is down over the last year).

See our latest analysis for FFI Holdings

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ASX:FFI Earnings and Revenue History September 28th 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 FFI Holdings’ statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of FFI Holdings.

The Impact Of Unusual Items On Profit

For anyone who wants to understand FFI Holdings’ profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from AU$359k worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Assuming those unusual items don’t show up again in the current year, we’d thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On FFI Holdings’ Profit Performance

Arguably, FFI Holdings’ statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that FFI Holdings’ statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 48% per annum growth in EPS for the last three. 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’d like to know more about FFI Holdings as a business, it’s important to be aware of any risks it’s facing. You’d be interested to know, that we found 2 warning signs for FFI Holdings and you’ll want to know about these.

Today we’ve zoomed in on a single data point to better understand the nature of FFI Holdings’ 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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