Is There More To The Story Than Highlight Communications's (ETR:HLG) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Highlight Communications (ETR:HLG).

While Highlight Communications was able to generate revenue of CHF514.8m in the last twelve months, we think its profit result of CHF29.9m was more important. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

Check out our latest analysis for Highlight Communications

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 Highlight Communications' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Highlight Communications.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Highlight Communications' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CHF4.5m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Highlight Communications 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 Highlight Communications' Profit Performance

Because unusual items detracted from Highlight Communications' 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 Highlight Communications' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the 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 Highlight Communications at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Highlight Communications.

Today we've zoomed in on a single data point to better understand the nature of Highlight Communications' 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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