Here's Why Vulcabras Azaleia's (BVMF:VULC3) Statutory Earnings Are Arguably Too Conservative

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. In this article, we'll look at how useful this year's statutory profit is, when analysing Vulcabras Azaleia (BVMF:VULC3).

It's good to see that over the last twelve months Vulcabras Azaleia made a profit of R$22.1m on revenue of R$1.09b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Vulcabras Azaleia

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 Vulcabras Azaleia'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?

Importantly, our data indicates that Vulcabras Azaleia's profit was reduced by R$43m, 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. In the twelve months to September 2020, Vulcabras Azaleia had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Vulcabras Azaleia's Profit Performance

As we discussed above, we think the significant unusual expense will make Vulcabras Azaleia's statutory profit lower than it would otherwise have been. Because of this, we think Vulcabras Azaleia's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! On the other hand, its EPS actually shrunk in the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Vulcabras Azaleia at this point in time. Every company has risks, and we've spotted 2 warning signs for Vulcabras Azaleia you should know about.

This note has only looked at a single factor that sheds light on the nature of Vulcabras Azaleia'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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