Should You Use Minera Valparaiso's (SNSE:MINERA) Statutory Earnings To Analyse It?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Minera Valparaiso (SNSE:MINERA).

It's good to see that over the last twelve months Minera Valparaiso made a profit of US$72.2m on revenue of US$1.37b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Minera Valparaiso

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

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Minera Valparaiso's profit was reduced by US$104m, 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 Minera Valparaiso 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 Minera Valparaiso's Profit Performance

Because unusual items detracted from Minera Valparaiso's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Minera Valparaiso's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. At Simply Wall St, we found 3 warning signs for Minera Valparaiso and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Minera Valparaiso'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. 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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