We're Not Counting On A.A.A. Allgemeine Anlageverwaltung (FRA:AAA) To Sustain Its Statutory Profitability

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 A.A.A. Allgemeine Anlageverwaltung (FRA:AAA).

While A.A.A. Allgemeine Anlageverwaltung was able to generate revenue of €5.89m in the last twelve months, we think its profit result of €1.44m was more important.

See our latest analysis for A.A.A. Allgemeine Anlageverwaltung

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on A.A.A. Allgemeine Anlageverwaltung's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of A.A.A. Allgemeine Anlageverwaltung.

The Impact Of Unusual Items On Profit

For anyone who wants to understand A.A.A. Allgemeine Anlageverwaltung's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €1.3m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. A.A.A. Allgemeine Anlageverwaltung had a rather significant contribution from unusual items relative to its profit to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On A.A.A. Allgemeine Anlageverwaltung's Profit Performance

As we discussed above, we think the significant positive unusual item makes A.A.A. Allgemeine Anlageverwaltung'searnings a poor guide to its underlying profitability. For this reason, we think that A.A.A. Allgemeine Anlageverwaltung's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 3 warning signs for A.A.A. Allgemeine Anlageverwaltung (1 can't be ignored!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of A.A.A. Allgemeine Anlageverwaltung's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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