We Think Tejon Ranch's (NYSE:TRC) Statutory Profit Might Understate Its Earnings Potential

Broadly speaking, profitable businesses are less risky than 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. This article will consider whether Tejon Ranch's (NYSE:TRC) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Tejon Ranch made a profit of US$9.78m on revenue of US$49.2m. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for Tejon Ranch

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Tejon Ranch's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tejon Ranch.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Tejon Ranch's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$1.6m 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. 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. Tejon Ranch took a rather significant hit from unusual items in the year to March 2020. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Tejon Ranch's Profit Performance

As we mentioned previously, the Tejon Ranch's profit was hampered by unusual items in the last year. Because of this, we think Tejon Ranch's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate 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. While earnings are important, another area to consider is the balance sheet. You can see our latest analysis on Tejon Ranch's balance sheet health here.

This note has only looked at a single factor that sheds light on the nature of Tejon Ranch's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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