We’re Not So Sure You Should Rely on Sadbhav Infrastructure Project’s (NSE:SADBHIN) Statutory Earnings

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Sadbhav Infrastructure Project (NSE:SADBHIN).

It’s good to see that over the last twelve months Sadbhav Infrastructure Project made a profit of ₹10.3b on revenue of ₹22.7b. 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.

See our latest analysis for Sadbhav Infrastructure Project

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NSEI:SADBHIN Earnings and Revenue History July 15th 2020

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 focus on the impact unusual items have had on Sadbhav Infrastructure Project’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.

How Do Unusual Items Influence Profit?

To properly understand Sadbhav Infrastructure Project’s profit results, we need to consider the ₹15b gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. And, after all, that’s exactly what the accounting terminology implies. We can see that Sadbhav Infrastructure Project’s positive unusual items were quite significant relative to its profit in the year to March 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Sadbhav Infrastructure Project’s Profit Performance

As previously mentioned, Sadbhav Infrastructure Project’s large boost from unusual items won’t be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Sadbhav Infrastructure Project’s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. For instance, we’ve identified 5 warning signs for Sadbhav Infrastructure Project (1 doesn’t sit too well with us) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Sadbhav Infrastructure Project’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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