Are Inversiones Aguas Metropolitanas's (SNSE:IAM) Statutory Earnings A Good Reflection Of Its Earnings Potential?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Inversiones Aguas Metropolitanas' (SNSE:IAM) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Inversiones Aguas Metropolitanas made a profit of CL$51.6b on revenue of CL$532.8b. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

See our latest analysis for Inversiones Aguas Metropolitanas

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Inversiones Aguas Metropolitanas' most recent profit results. 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.

How Do Unusual Items Influence Profit?

To properly understand Inversiones Aguas Metropolitanas' profit results, we need to consider the CL$14b gain attributed to 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 that's as you'd expect, given these boosts are described as 'unusual'. If Inversiones Aguas Metropolitanas doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Inversiones Aguas Metropolitanas' Profit Performance

We'd posit that Inversiones Aguas Metropolitanas' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Inversiones Aguas Metropolitanas' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Inversiones Aguas Metropolitanas has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Inversiones Aguas Metropolitanas' profit. But there are plenty of other ways to inform your opinion of a company. 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 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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