We're Not Counting On J. Smart (Contractors) (LON:SMJ) To Sustain Its Statutory Profitability

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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 J. Smart (Contractors)'s (LON:SMJ) statutory profits are a good guide to its underlying earnings.

We like the fact that J. Smart (Contractors) made a profit of UK£3.63m on its revenue of UK£16.8m, in the last year. The chart below shows that both revenue and profit have declined over the last three years.

See our latest analysis for J. Smart (Contractors)

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted J. Smart (Contractors)'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 J. Smart (Contractors).

The Impact Of Unusual Items On Profit

For anyone who wants to understand J. Smart (Contractors)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from UK£2.8m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that J. Smart (Contractors)'s positive unusual items were quite significant relative to its profit in the year to July 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On J. Smart (Contractors)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes J. Smart (Contractors)'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that J. Smart (Contractors)'s underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of J. Smart (Contractors).

This note has only looked at a single factor that sheds light on the nature of J. Smart (Contractors)'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. 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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