Sword Group's (EPA:SWP) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Sword Group S.E. (EPA:SWP ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sword Group's profit was reduced by €5.5m, due to unusual items, over the last year. 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 Sword Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Sword Group's Profit Performance

Because unusual items detracted from Sword Group'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 Sword Group's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 25% annually, over the last three years. 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. If you'd like to know more about Sword Group as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Sword Group , and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Sword Group's profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings 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.