Nilfisk Holding's (CPH:NLFSK) Soft Earnings Don't Show The Whole Picture

The market was pleased with the recent earnings report from Nilfisk Holding A/S (CPH:NLFSK), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Nilfisk Holding's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €23m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Nilfisk Holding doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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.

Our Take On Nilfisk Holding's Profit Performance

Because unusual items detracted from Nilfisk Holding's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Nilfisk Holding's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Nilfisk Holding at this point in time. For example, we've found that Nilfisk Holding has 3 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Nilfisk Holding'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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.