Are Eutelsat Communications's (EPA:ETL) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Eutelsat Communications' (EPA:ETL) statutory profits are a good guide to its underlying earnings.

While Eutelsat Communications was able to generate revenue of €1.28b in the last twelve months, we think its profit result of €297.6m was more important. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Eutelsat Communications

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 Eutelsat Communications' 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 Eutelsat Communications' profit received a boost of €44m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Eutelsat Communications 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 Eutelsat Communications' Profit Performance

We'd posit that Eutelsat Communications' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Eutelsat Communications' true underlying earnings power is actually less 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. So while earnings quality is important, it's equally important to consider the risks facing Eutelsat Communications at this point in time. At Simply Wall St, we found 2 warning signs for Eutelsat Communications and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Eutelsat Communications' 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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