Should You Use Verizon Communications’s (NYSE:VZ) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. This article will consider whether Verizon Communications‘s (NYSE:VZ) statutory profits are a good guide to its underlying earnings.

It’s good to see that over the last twelve months Verizon Communications made a profit of US$16.1b on revenue of US$131.4b. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).

See our latest analysis for Verizon Communications

NYSE:VZ Income Statement, January 17th 2020
NYSE:VZ Income Statement, January 17th 2020

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 Verizon Communications’s 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 Verizon Communications’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by US$6.7b due to unusual items. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Assuming those unusual expenses don’t come up again, we’d therefore expect Verizon Communications to produce a higher profit next year, all else being equal.

Our Take On Verizon Communications’s Profit Performance

Unusual items (expenses) detracted from Verizon Communications’s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Verizon Communications’s statutory profit actually understates its earnings potential! And the EPS is up 13% annually, over the last three years. At the end of the day, it’s essential to consider more than just the factors above, if you want to understand the company properly. Ultimately, this article has formed an opinion based on historical data. However, it can also be great to think about what analysts are forecasting for the future. Luckily, you can check out what analysts are forecsting by clicking here.

This note has only looked at a single factor that sheds light on the nature of Verizon Communications’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. 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.