Are Terveystalo Oyj's (HEL:TTALO) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
November 17, 2020

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Terveystalo Oyj (HEL:TTALO).

While Terveystalo Oyj was able to generate revenue of €977.0m in the last twelve months, we think its profit result of €39.6m was more important. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).

See our latest analysis for Terveystalo Oyj

HLSE:TTALO Earnings and Revenue History November 18th 2020

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Terveystalo Oyj's statutory earnings. 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.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Terveystalo Oyj's profit was reduced by €18m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Terveystalo Oyj to produce a higher profit next year, all else being equal.

Our Take On Terveystalo Oyj's Profit Performance

Unusual items (expenses) detracted from Terveystalo Oyj's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Terveystalo Oyj's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Terveystalo Oyj you should know about.

This note has only looked at a single factor that sheds light on the nature of Terveystalo Oyj'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. 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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