Should You Use Ultrapar Participações' (BVMF:UGPA3) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than 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. This article will consider whether Ultrapar Participações' (BVMF:UGPA3) statutory profits are a good guide to its underlying earnings.

We like the fact that Ultrapar Participações made a profit of R$200.8m on its revenue of R$81.7b, in the last year. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for Ultrapar Participações

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Ultrapar Participações' most recent profit results. 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.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ultrapar Participações' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by R$405m 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 Ultrapar Participações doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Ultrapar Participações' Profit Performance

Because unusual items detracted from Ultrapar Participações' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Ultrapar Participações' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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 Ultrapar Participações at this point in time. For instance, we've identified 4 warning signs for Ultrapar Participações (1 can't be ignored) you should be familiar with.

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