EnBW Energie Baden-Württemberg (ETR:EBK) Is Growing Earnings But Are They A Good Guide?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. This article will consider whether EnBW Energie Baden-Württemberg's (ETR:EBK) statutory profits are a good guide to its underlying earnings.

While EnBW Energie Baden-Württemberg was able to generate revenue of €18.7b in the last twelve months, we think its profit result of €696.2m was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

View our latest analysis for EnBW Energie Baden-Württemberg

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. This article will discuss how unusual items have impacted EnBW Energie Baden-Württemberg's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of EnBW Energie Baden-Württemberg.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that EnBW Energie Baden-Württemberg's profit was reduced by €129m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect EnBW Energie Baden-Württemberg to produce a higher profit next year, all else being equal.

Our Take On EnBW Energie Baden-Württemberg's Profit Performance

Unusual items (expenses) detracted from EnBW Energie Baden-Württemberg's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that EnBW Energie Baden-Württemberg's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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 EnBW Energie Baden-Württemberg at this point in time. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in EnBW Energie Baden-Württemberg.

Today we've zoomed in on a single data point to better understand the nature of EnBW Energie Baden-Württemberg's profit. But there are plenty of other ways to inform your opinion of a company. 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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