Equatorial Maranhão Distribuidora de Energia's (BVMF:EQMA3B) Conservative Accounting Might Explain Soft Earnings

The market for Equatorial Maranhão Distribuidora de Energia S.A.'s (BVMF:EQMA3B) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Equatorial Maranhão Distribuidora de Energia

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Equatorial Maranhão Distribuidora de Energia's profit was reduced by R$271m, 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Equatorial Maranhão Distribuidora de Energia to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Equatorial Maranhão Distribuidora de Energia.

Our Take On Equatorial Maranhão Distribuidora de Energia's Profit Performance

Unusual items (expenses) detracted from Equatorial Maranhão Distribuidora de Energia's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Equatorial Maranhão Distribuidora de Energia's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 24% per year 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. If you'd like to know more about Equatorial Maranhão Distribuidora de Energia as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Equatorial Maranhão Distribuidora de Energia you should know about.

Today we've zoomed in on a single data point to better understand the nature of Equatorial Maranhão Distribuidora de Energia's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.