Stara Planina Hold's (BUL:SPH) Conservative Accounting Might Explain Soft Earnings

Shareholders appeared unconcerned with Stara Planina Hold Plc's (BUL:SPH) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Stara Planina Hold's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by лв4.6m 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 that's hardly a surprise given these line items are considered unusual. If Stara Planina Hold doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Stara Planina Hold.

Our Take On Stara Planina Hold's Profit Performance

Unusual items (expenses) detracted from Stara Planina Hold's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Stara Planina Hold's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Stara Planina Hold at this point in time. To that end, you should learn about the 5 warning signs we've spotted with Stara Planina Hold (including 3 which are significant).

This note has only looked at a single factor that sheds light on the nature of Stara Planina Hold's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.