Are Compañía Chilena de Fósforos's (SNSE:FOSFOROS) Statutory Earnings A Good Guide To Its Underlying Profitability?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Compañía Chilena de Fósforos' (SNSE:FOSFOROS) statutory profits are a good guide to its underlying earnings.

We like the fact that Compañía Chilena de Fósforos made a profit of CL$1.61b on its revenue of CL$27.3b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

Check out our latest analysis for Compañía Chilena de Fósforos

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 focus on the impact unusual items have had on Compañía Chilena de Fósforos' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Compañía Chilena de Fósforos.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Compañía Chilena de Fósforos' profit was reduced by CL$252m, 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. 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 Compañía Chilena de Fósforos doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Compañía Chilena de Fósforos' Profit Performance

Unusual items (expenses) detracted from Compañía Chilena de Fósforos' earnings over the last year, but we might see an improvement next year. Because of this, we think Compañía Chilena de Fósforos' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 23% annually, 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 Compañía Chilena de Fósforos as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Compañía Chilena de Fósforos (including 1 which can't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Compañía Chilena de Fósforos' 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. 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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