Does Athens Water Supply and Sewerage's (ATH:EYDAP) Statutory Profit Adequately Reflect Its Underlying Profit?

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 Athens Water Supply and Sewerage's (ATH:EYDAP) statutory profits are a good guide to its underlying earnings.

We like the fact that Athens Water Supply and Sewerage made a profit of €47.4m on its revenue of €330.4m, in the last year. As you can see in the chart below, it has grown its profits over the last three years, despite the fact its revenue has been steady.

See our latest analysis for Athens Water Supply and Sewerage

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 Athens Water Supply and Sewerage's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Athens Water Supply and Sewerage.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Athens Water Supply and Sewerage's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €22m 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. 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 Athens Water Supply and Sewerage doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Athens Water Supply and Sewerage's Profit Performance

Because unusual items detracted from Athens Water Supply and Sewerage'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 Athens Water Supply and Sewerage's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 65% per year 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Athens Water Supply and Sewerage, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Athens Water Supply and Sewerage'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. 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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