Does SKAKO's (CPH:SKAKO) Statutory Profit Adequately Reflect Its Underlying Profit?

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. In this article, we'll look at how useful this year's statutory profit is, when analysing SKAKO (CPH:SKAKO).

We like the fact that SKAKO made a profit of kr.19.1m on its revenue of kr.343.8m, in the last year.

Check out our latest analysis for SKAKO

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

How Do Unusual Items Influence Profit?

Importantly, our data indicates that SKAKO's profit received a boost of kr.1.8m 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 SKAKO 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 SKAKO's Profit Performance

Arguably, SKAKO's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that SKAKO's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 10% EPS growth in the last year. 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. To that end, you should learn about the 3 warning signs we've spotted with SKAKO (including 1 which shouldn't be ignored).

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