Statutory Profit Doesn't Reflect How Good Euroapi's (EPA:EAPI) Earnings Are

Euroapi S.A. (EPA:EAPI) recently posted some strong earnings, and the market responded positively. We did some digging and found some further encouraging factors that investors will like.

Check out our latest analysis for Euroapi

How Do Unusual Items Influence Profit?

To properly understand Euroapi's profit results, we need to consider the €18m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Euroapi took a rather significant hit from unusual items in the year to June 2022. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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.

Our Take On Euroapi's Profit Performance

As we discussed above, we think the significant unusual expense will make Euroapi's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Euroapi's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Euroapi, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Euroapi's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.