Here's Why We Don't Think Galil Capital RE Spain SOCIMI's (BME:YGCS) Statutory Earnings Reflect Its Underlying Earnings Potential

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Galil Capital RE Spain SOCIMI (BME:YGCS).

It's good to see that over the last twelve months Galil Capital RE Spain SOCIMI made a profit of €3.79m on revenue of €1.40m. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

See our latest analysis for Galil Capital RE Spain SOCIMI

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 Galil Capital RE Spain SOCIMI's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Galil Capital RE Spain SOCIMI.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Galil Capital RE Spain SOCIMI's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €4.9m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 that's as you'd expect, given these boosts are described as 'unusual'. Galil Capital RE Spain SOCIMI had a rather significant contribution from unusual items relative to its profit to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Galil Capital RE Spain SOCIMI's Profit Performance

As we discussed above, we think the significant positive unusual item makes Galil Capital RE Spain SOCIMI'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Galil Capital RE Spain SOCIMI's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into Galil Capital RE Spain SOCIMI, you'd also look into what risks it is currently facing. Case in point: We've spotted 5 warning signs for Galil Capital RE Spain SOCIMI you should be mindful of and 1 of them is concerning.

Today we've zoomed in on a single data point to better understand the nature of Galil Capital RE Spain SOCIMI's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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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