Does Tallinna Kaubamaja Grupp's (TAL:TKM1T) 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 Tallinna Kaubamaja Grupp (TAL:TKM1T).

We like the fact that Tallinna Kaubamaja Grupp made a profit of €25.6m on its revenue of €733.3m, in the last year. As shown in the chart below, it did manage to grow its revenue over the last three years, although its profit has been pretty flat.

See our latest analysis for Tallinna Kaubamaja Grupp

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 discuss how unusual items have impacted Tallinna Kaubamaja Grupp'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 Tallinna Kaubamaja Grupp.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Tallinna Kaubamaja Grupp's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €4.0m worth of unusual items. 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. If Tallinna Kaubamaja Grupp 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 Tallinna Kaubamaja Grupp's Profit Performance

We'd posit that Tallinna Kaubamaja Grupp's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Tallinna Kaubamaja Grupp's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Tallinna Kaubamaja Grupp and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Tallinna Kaubamaja Grupp'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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