Are Profarma Distribuidora de Produtos Farmacêuticos' (BVMF:PFRM3) Statutory Earnings A Good Reflection Of Its Earnings Potential?

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Profarma Distribuidora de Produtos Farmacêuticos (BVMF:PFRM3).

We like the fact that Profarma Distribuidora de Produtos Farmacêuticos made a profit of R$44.0m on its revenue of R$5.28b, in the last year. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for Profarma Distribuidora de Produtos Farmacêuticos

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 have impacted Profarma Distribuidora de Produtos Farmacêuticos' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Profarma Distribuidora de Produtos Farmacêuticos.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Profarma Distribuidora de Produtos Farmacêuticos' profit was reduced by R$43m, due to unusual items, over the last year. 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 Profarma Distribuidora de Produtos Farmacêuticos to produce a higher profit next year, all else being equal.

Our Take On Profarma Distribuidora de Produtos Farmacêuticos' Profit Performance

Because unusual items detracted from Profarma Distribuidora de Produtos Farmacêuticos' 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 Profarma Distribuidora de Produtos Farmacêuticos' statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Profarma Distribuidora de Produtos Farmacêuticos, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for Profarma Distribuidora de Produtos Farmacêuticos (1 is a bit concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Profarma Distribuidora de Produtos Farmacêuticos' profit. 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 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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