Statutory Profit Doesn't Reflect How Good Vitru Brasil Empreendimentos Participações e Comércio's (BVMF:VTRU3) Earnings Are

The subdued stock price reaction suggests that Vitru Brasil Empreendimentos, Participações e Comércio S.A's (BVMF:VTRU3) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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How Do Unusual Items Influence Profit?

To properly understand Vitru Brasil Empreendimentos Participações e Comércio's profit results, we need to consider the R$232m expense attributed 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 Vitru Brasil Empreendimentos Participações e Comércio doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Vitru Brasil Empreendimentos Participações e Comércio received a tax benefit of R$285m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Vitru Brasil Empreendimentos Participações e Comércio's Profit Performance

In its last report Vitru Brasil Empreendimentos Participações e Comércio received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Given the contrasting considerations, we don't have a strong view as to whether Vitru Brasil Empreendimentos Participações e Comércio's profits are an apt reflection of its underlying potential for profit. If you want to do dive deeper into Vitru Brasil Empreendimentos Participações e Comércio, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Vitru Brasil Empreendimentos Participações e Comércio (1 is a bit unpleasant) you should be familiar with.

Our examination of Vitru Brasil Empreendimentos Participações e Comércio 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. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.