We Wouldn't Rely On Empresa Nacional de Telecomunicaciones's (SNSE:ENTEL) Statutory Earnings As A Guide

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Empresa Nacional de Telecomunicaciones (SNSE:ENTEL).

While Empresa Nacional de Telecomunicaciones was able to generate revenue of CL$2.03t in the last twelve months, we think its profit result of CL$181.7b was more important.

Check out our latest analysis for Empresa Nacional de Telecomunicaciones

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 Empresa Nacional de Telecomunicaciones' statutory earnings. 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.

The Impact Of Unusual Items On Profit

To properly understand Empresa Nacional de Telecomunicaciones' profit results, we need to consider the CL$238b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Empresa Nacional de Telecomunicaciones' positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Empresa Nacional de Telecomunicaciones' Profit Performance

As we discussed above, we think the significant positive unusual item makes Empresa Nacional de Telecomunicaciones'earnings a poor guide to its underlying profitability. For this reason, we think that Empresa Nacional de Telecomunicaciones' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for Empresa Nacional de Telecomunicaciones (1 is significant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Empresa Nacional de Telecomunicaciones' 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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