Are CML Microsystems' (LON:CML) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
February 11, 2021
LSE:CML
Source: Shutterstock

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. In this article, we'll look at how useful this year's statutory profit is, when analysing CML Microsystems (LON:CML).

It's good to see that over the last twelve months CML Microsystems made a profit of UK£1.30m on revenue of UK£26.3m. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for CML Microsystems

earnings-and-revenue-history
LSE:CML Earnings and Revenue History February 12th 2021

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 CML Microsystems' 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.

How Do Unusual Items Influence Profit?

To properly understand CML Microsystems' profit results, we need to consider the UK£689k expense attributed 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. 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. Assuming those unusual expenses don't come up again, we'd therefore expect CML Microsystems to produce a higher profit next year, all else being equal.

Our Take On CML Microsystems' Profit Performance

Unusual items (expenses) detracted from CML Microsystems' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that CML Microsystems' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you'd like to know more about CML Microsystems as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for CML Microsystems (of which 1 can't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on the nature of CML Microsystems' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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