Tree Island Steel's (TSE:TSL) Soft Earnings Don't Show The Whole Picture

Tree Island Steel Ltd.'s (TSE:TSL) earnings announcement last week didn't impress shareholders. However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

View our latest analysis for Tree Island Steel

How Do Unusual Items Influence Profit?

For anyone who wants to understand Tree Island Steel's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CA$2.6m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Tree Island Steel doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tree Island Steel.

Our Take On Tree Island Steel's Profit Performance

Unusual items (expenses) detracted from Tree Island Steel's earnings over the last year, but we might see an improvement next year. Because of this, we think Tree Island Steel's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 52% per year over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Tree Island Steel at this point in time. While conducting our analysis, we found that Tree Island Steel has 3 warning signs and it would be unwise to ignore these bad boys.

This note has only looked at a single factor that sheds light on the nature of Tree Island Steel'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. 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. 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.