Robust Earnings May Not Tell The Whole Story For Nordic Shipholding (CPH:NORDIC)

The market shrugged off Nordic Shipholding A/S' (CPH:NORDIC) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

View our latest analysis for Nordic Shipholding

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nordic Shipholding's profit received a boost of US$4.2m 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. 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. And, after all, that's exactly what the accounting terminology implies. Nordic Shipholding had a rather significant contribution from unusual items relative to its profit to December 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nordic Shipholding.

Our Take On Nordic Shipholding's Profit Performance

As we discussed above, we think the significant positive unusual item makes Nordic Shipholding's earnings a poor guide to its underlying profitability. For this reason, we think that Nordic Shipholding'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. 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 Nordic Shipholding at this point in time. When we did our research, we found 5 warning signs for Nordic Shipholding (4 are significant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Nordic Shipholding'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. 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.