We're Not So Sure You Should Rely on RBG Holdings's (LON:RBGP) Statutory Earnings

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing RBG Holdings (LON:RBGP).

It's good to see that over the last twelve months RBG Holdings made a profit of UK£4.78m on revenue of UK£23.7m. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

View our latest analysis for RBG Holdings

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 focus on the impact unusual items have had on RBG Holdings' 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?

To properly understand RBG Holdings' profit results, we need to consider the UK£1.7m gain attributed to 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. 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 that's as you'd expect, given these boosts are described as 'unusual'. RBG Holdings had a rather significant contribution from unusual items relative to its profit to June 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 RBG Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes RBG Holdings'earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that RBG Holdings' underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - RBG Holdings has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of RBG Holdings' 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. 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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