Does MERCK Kommanditgesellschaft auf Aktien's (ETR:MRK) Statutory Profit Adequately Reflect Its Underlying Profit?

Statistically speaking, it is less risky to invest in profitable companies than in 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. In this article, we'll look at how useful this year's statutory profit is, when analysing MERCK Kommanditgesellschaft auf Aktien (ETR:MRK).

It's good to see that over the last twelve months MERCK Kommanditgesellschaft auf Aktien made a profit of €1.88b on revenue of €17.3b. In the chart below, you can see that its profit and revenue have both grown over the last three years.

See our latest analysis for MERCK Kommanditgesellschaft auf Aktien

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted MERCK Kommanditgesellschaft auf Aktien's 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.

The Impact Of Unusual Items On Profit

For anyone who wants to understand MERCK Kommanditgesellschaft auf Aktien's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €399m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If MERCK Kommanditgesellschaft auf Aktien 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 MERCK Kommanditgesellschaft auf Aktien's Profit Performance

Unusual items (expenses) detracted from MERCK Kommanditgesellschaft auf Aktien's earnings over the last year, but we might see an improvement next year. Because of this, we think MERCK Kommanditgesellschaft auf Aktien's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 64% over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - MERCK Kommanditgesellschaft auf Aktien has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of MERCK Kommanditgesellschaft auf Aktien's 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.

If you’re looking to trade MERCK Kommanditgesellschaft auf Aktien, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.