Are ProSiebenSat.1 Media's (ETR:PSM) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
January 21, 2020
XTRA:PSM
Source: Shutterstock

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing ProSiebenSat.1 Media (ETR:PSM).

We like the fact that ProSiebenSat.1 Media made a profit of €218.0m on its revenue of €4.11b, in the last year. 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.

Check out our latest analysis for ProSiebenSat.1 Media

XTRA:PSM Income Statement, January 22nd 2020
XTRA:PSM Income Statement, January 22nd 2020

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 ProSiebenSat.1 Media's 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

For anyone who wants to understand ProSiebenSat.1 Media's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €190m 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 that's hardly a surprise given these line items are considered unusual. If ProSiebenSat.1 Media 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 ProSiebenSat.1 Media's Profit Performance

Because unusual items detracted from ProSiebenSat.1 Media'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 ProSiebenSat.1 Media's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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. Ultimately, this article has formed an opinion based on historical data. However, it can also be great to think about what analysts are forecasting for the future. At Simply Wall St, we have analyst estimates which you can view by clicking here.

This note has only looked at a single factor that sheds light on the nature of ProSiebenSat.1 Media's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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