Stock Analysis

Should You Use BlueScope Steel's (ASX:BSL) Statutory Earnings To Analyse It?

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ASX:BSL
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As a general rule, we think profitable companies are less risky than companies that lose money. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing BlueScope Steel (ASX:BSL).

While BlueScope Steel was able to generate revenue of AU$11.3b in the last twelve months, we think its profit result of AU$101.3m was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

Check out our latest analysis for BlueScope Steel

earnings-and-revenue-history
ASX:BSL Earnings and Revenue History January 29th 2021

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on BlueScope Steel'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?

For anyone who wants to understand BlueScope Steel's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by AU$184m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect BlueScope Steel to produce a higher profit next year, all else being equal.

Our Take On BlueScope Steel's Profit Performance

Unusual items (expenses) detracted from BlueScope Steel's earnings over the last year, but we might see an improvement next year. Because of this, we think BlueScope Steel's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you want to do dive deeper into BlueScope Steel, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for BlueScope Steel and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of BlueScope Steel'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.

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