Leveljump Healthcare's (CVE:JUMP) Shareholders Should Assess Earnings With Caution

Strong earnings weren't enough to please Leveljump Healthcare Corp.'s (CVE:JUMP) shareholders over the last week. We did some analysis and believe that they might be concerned about some weak underlying factors.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Leveljump Healthcare's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CA$143k worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If Leveljump Healthcare doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Leveljump Healthcare.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Leveljump Healthcare received a tax benefit which contributed CA$2.2m to the bottom line. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On Leveljump Healthcare's Profit Performance

In its last report Leveljump Healthcare received a tax benefit which might make its profit look better than it really is on a underlying level. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. Considering all this we'd argue Leveljump Healthcare's profits probably give an overly generous impression of its sustainable level of profitability. So while earnings quality is important, it's equally important to consider the risks facing Leveljump Healthcare at this point in time. Case in point: We've spotted 4 warning signs for Leveljump Healthcare you should be mindful of and 3 of these don't sit too well with us.

Our examination of Leveljump Healthcare has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 with significant insider holdings 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.