Emirates Driving Company P.J.S.C (ADX:DRIVE) Is Growing Earnings But Are They A Good Guide?

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 Emirates Driving Company P.J.S.C's (ADX:DRIVE) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Emirates Driving Company P.J.S.C made a profit of د.إ129.2m on revenue of د.إ231.3m. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

See our latest analysis for Emirates Driving Company P.J.S.C

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 discuss how unusual items have impacted Emirates Driving Company P.J.S.C'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 Emirates Driving Company P.J.S.C.

The Impact Of Unusual Items On Profit

To properly understand Emirates Driving Company P.J.S.C's profit results, we need to consider the د.إ14m expense attributed 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. If Emirates Driving Company P.J.S.C doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Emirates Driving Company P.J.S.C's Profit Performance

Unusual items (expenses) detracted from Emirates Driving Company P.J.S.C's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Emirates Driving Company P.J.S.C's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 21% per year over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. If you're interested we have a graphic representation of Emirates Driving Company P.J.S.C's balance sheet.

This note has only looked at a single factor that sheds light on the nature of Emirates Driving Company P.J.S.C'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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