We Think Citycon Oyj’s (HEL:CTY1S) Statutory Profit Might Understate Its Earnings Potential

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Citycon Oyj (HEL:CTY1S).

We like the fact that Citycon Oyj made a profit of €7.20m on its revenue of €292.6m, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Citycon Oyj

HLSE:CTY1S Income Statement, March 25th 2020
HLSE:CTY1S Income Statement, March 25th 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 Citycon Oyj’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

Importantly, our data indicates that Citycon Oyj’s profit was reduced by €131m, 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. In the twelve months to December 2019, Citycon Oyj had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Citycon Oyj’s Profit Performance

As we mentioned previously, the Citycon Oyj’s profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Citycon Oyj’s statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it’s equally important to consider the risks facing Citycon Oyj at this point in time. Every company has risks, and we’ve spotted 5 warning signs for Citycon Oyj (of which 1 shouldn’t be ignored!) you should know about.

Today we’ve zoomed in on a single data point to better understand the nature of Citycon Oyj’s profit. But there are plenty of other ways to inform your opinion of a company. 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.