Does Gascogne's (EPA:ALBI) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Gascogne's (EPA:ALBI) statutory profits are a good guide to its underlying earnings.

We like the fact that Gascogne made a profit of €7.38m on its revenue of €368.5m, in the last year. The chart below shows how profit is flat over the last three years, even though revenue has declined.

See our latest analysis for Gascogne

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 Gascogne's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gascogne.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Gascogne's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €2.0m due 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, after all, that's exactly what the accounting terminology implies. If Gascogne doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Gascogne's Profit Performance

Unusual items (expenses) detracted from Gascogne's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Gascogne's statutory profit actually understates its earnings potential! 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 Gascogne, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for Gascogne (1 is a bit unpleasant) you should be familiar with.

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