OC Oerlikon's (VTX:OERL) Strong Earnings Are Of Good Quality

Even though OC Oerlikon Corporation AG (VTX:OERL ) posted strong earnings, investors appeared to be underwhelmed. We did some digging and actually think they are being unnecessarily pessimistic.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that OC Oerlikon's profit was reduced by CHF11m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 OC Oerlikon to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On OC Oerlikon's Profit Performance

Unusual items (expenses) detracted from OC Oerlikon's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that OC Oerlikon's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite 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 OC Oerlikon at this point in time. For example - OC Oerlikon has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of OC Oerlikon'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. 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.