Are Gelsenwasser's (FRA:WWG) Statutory Earnings A Good Guide To Its Underlying Profitability?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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 Gelsenwasser (FRA:WWG).

We like the fact that Gelsenwasser made a profit of €114.6m on its revenue of €1.63b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its revenue has slipped in the last twelve months.

Check out our latest analysis for Gelsenwasser

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 Gelsenwasser's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gelsenwasser.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Gelsenwasser's profit received a boost of €2.4m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Gelsenwasser doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Gelsenwasser's Profit Performance

Arguably, Gelsenwasser's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Gelsenwasser's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 16% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Gelsenwasser's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Gelsenwasser'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.

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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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