We Think That There Are Issues Underlying Vitru Brasil Empreendimentos Participações e Comércio's (BVMF:VTRU3) Earnings

Despite posting some strong earnings, the market for Vitru Brasil Empreendimentos, Participações e Comércio S.A.'s (BVMF:VTRU3) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Vitru Brasil Empreendimentos Participações e Comércio's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by R$199m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Vitru Brasil Empreendimentos Participações e Comércio to produce a higher profit next year, all else being equal.

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

Just as we noted the unusual items, we must inform you that Vitru Brasil Empreendimentos Participações e Comércio received a tax benefit which contributed R$368m to the bottom line. 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! The receipt of a tax benefit is obviously a good thing, on its own. 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. 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 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. To help with this, we've discovered 3 warning signs (2 can't be ignored!) that you ought to be aware of before buying any shares in Vitru Brasil Empreendimentos Participações e Comércio.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.