Are Savencia's (EPA:SAVE) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Savencia (EPA:SAVE).

It's good to see that over the last twelve months Savencia made a profit of €73.0m on revenue of €4.99b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Savencia

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 Savencia'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?

To properly understand Savencia's profit results, we need to consider the €44m expense attributed to unusual items. 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Savencia to produce a higher profit next year, all else being equal.

Our Take On Savencia's Profit Performance

Because unusual items detracted from Savencia's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Savencia's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 46% over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Savencia as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Savencia, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Savencia'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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