Broadly speaking, profitable businesses are less risky than 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Seplat Petroleum Development (LON:SEPL).
We like the fact that Seplat Petroleum Development made a profit of US$24.2m on its revenue of US$590.7m, in the last year. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.
Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Seplat Petroleum Development's most recent profit results. 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.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Seplat Petroleum Development's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$141m due 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. Seplat Petroleum Development took a rather significant hit from unusual items in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
Our Take On Seplat Petroleum Development's Profit Performance
As we mentioned previously, the Seplat Petroleum Development's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Seplat Petroleum Development's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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. So while earnings quality is important, it's equally important to consider the risks facing Seplat Petroleum Development at this point in time. For example - Seplat Petroleum Development has 5 warning signs we think you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Seplat Petroleum Development'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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