Companhiade Eletricidade do Estado da Bahia - COELBA's (BVMF:CEEB3) Earnings Are Growing But Is There More To The Story?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Companhiade Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3).

While Companhiade Eletricidade do Estado da Bahia - COELBA was able to generate revenue of R$10.2b in the last twelve months, we think its profit result of R$1.02b was more important. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

View our latest analysis for Companhiade Eletricidade do Estado da Bahia - COELBA

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 focus on the impact unusual items have had on Companhiade Eletricidade do Estado da Bahia - COELBA's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Companhiade Eletricidade do Estado da Bahia - COELBA.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Companhiade Eletricidade do Estado da Bahia - COELBA's profit was reduced by R$164m, 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Companhiade Eletricidade do Estado da Bahia - COELBA to produce a higher profit next year, all else being equal.

Our Take On Companhiade Eletricidade do Estado da Bahia - COELBA's Profit Performance

Unusual items (expenses) detracted from Companhiade Eletricidade do Estado da Bahia - COELBA's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Companhiade Eletricidade do Estado da Bahia - COELBA's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 1 warning sign for Companhiade Eletricidade do Estado da Bahia - COELBA and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Companhiade Eletricidade do Estado da Bahia - COELBA's 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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