Should You Use Zarneni Hrani Bulgaria AD's (BUL:T43) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Zarneni Hrani Bulgaria AD (BUL:T43).

It's good to see that over the last twelve months Zarneni Hrani Bulgaria AD made a profit of лв3.74m on revenue of лв68.4m. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

View our latest analysis for Zarneni Hrani Bulgaria AD

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 discuss how unusual items and a tax benefit have impacted Zarneni Hrani Bulgaria AD's most recent bottom line results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zarneni Hrani Bulgaria AD.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Zarneni Hrani Bulgaria AD's profit was reduced by лв1.8m, due to unusual items, over the last year. 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. Zarneni Hrani Bulgaria AD took a rather significant hit from unusual items in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Zarneni Hrani Bulgaria AD received a tax benefit of лв712k. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Zarneni Hrani Bulgaria AD's Profit Performance

In its last report Zarneni Hrani Bulgaria AD received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Given the contrasting considerations, we don't have a strong view as to whether Zarneni Hrani Bulgaria AD's profits are an apt reflection of its underlying potential for profit. If you want to do dive deeper into Zarneni Hrani Bulgaria AD, you'd also look into what risks it is currently facing. Be aware that Zarneni Hrani Bulgaria AD is showing 4 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...

Our examination of Zarneni Hrani Bulgaria AD has focussed on certain factors that can make its earnings look better than they are. 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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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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