Does Passat Société Anonyme's (EPA:PSAT) 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. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Passat Société Anonyme (EPA:PSAT).

We like the fact that Passat Société Anonyme made a profit of €1.14m on its revenue of €34.2m, in the last year. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Passat Société Anonyme

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Passat Société Anonyme's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Passat Société Anonyme.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Passat Société Anonyme's profit was reduced by €288k, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Passat Société Anonyme to produce a higher profit next year, all else being equal.

Our Take On Passat Société Anonyme's Profit Performance

Unusual items (expenses) detracted from Passat Société Anonyme's earnings over the last year, but we might see an improvement next year. Because of this, we think Passat Société Anonyme's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Passat Société Anonyme at this point in time. Be aware that Passat Société Anonyme is showing 2 warning signs in our investment analysis and 1 of those is significant...

This note has only looked at a single factor that sheds light on the nature of Passat Société Anonyme'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. 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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