Should You Use Ceres Global Ag's (TSE:CRP) Statutory Earnings To Analyse It?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Ceres Global Ag (TSE:CRP).

While Ceres Global Ag was able to generate revenue of US$626.7m in the last twelve months, we think its profit result of US$1.64m was more important. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

View our latest analysis for Ceres Global Ag

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Ceres Global Ag's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ceres Global Ag.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ceres Global Ag's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$866k worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Ceres Global Ag doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Ceres Global Ag's Profit Performance

Arguably, Ceres Global Ag's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Ceres Global Ag's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 Ceres Global Ag at this point in time. To help with this, we've discovered 4 warning signs (1 can't be ignored!) that you ought to be aware of before buying any shares in Ceres Global Ag.

This note has only looked at a single factor that sheds light on the nature of Ceres Global Ag's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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