Is There More To The Story Than WCM Beteiligungs- und Grundbesitz-AG's (ETR:WCMK) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 WCM Beteiligungs- und Grundbesitz-AG (ETR:WCMK).

While WCM Beteiligungs- und Grundbesitz-AG was able to generate revenue of €177.7m in the last twelve months, we think its profit result of €32.8m was more important. One positive is that it has grown both its profit and its revenue, over the last few years.

View our latest analysis for WCM Beteiligungs- und Grundbesitz-AG

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. Therefore, we think it is well worth considering the impact that unusual items and a spike in non-operating revenue have had on WCM Beteiligungs- und Grundbesitz-AG's statutory profit result. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of WCM Beteiligungs- und Grundbesitz-AG.

Operating Revenue Or Not?

Most companies divide classify their revenue as either 'operating revenue', which comes from normal operations, and other revenue, which could include government grants, for example. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. Notably, WCM Beteiligungs- und Grundbesitz-AG had a significant increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from €59.4m to €177.7m. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

The Impact Of Unusual Items On Profit

As well as that spike in non-operating revenue, we should also consider the €18m boost to profit coming from unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. WCM Beteiligungs- und Grundbesitz-AG had a rather significant contribution from unusual items relative to its profit to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On WCM Beteiligungs- und Grundbesitz-AG's Profit Performance

In the last year WCM Beteiligungs- und Grundbesitz-AG's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. On reflection, the above-mentioned factors give us the strong impression that WCM Beteiligungs- und Grundbesitz-AG'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 6 warning signs for WCM Beteiligungs- und Grundbesitz-AG (2 shouldn't be ignored!) and we strongly recommend you look at these before investing.

Our examination of WCM Beteiligungs- und Grundbesitz-AG has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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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