Robust Earnings May Not Tell The Whole Story For Koncar - distributivni i specijalni transformatori d.d (ZGSE:KODT)

Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) just reported some strong earnings, and the market rewarded them with a positive share price move. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Check out our latest analysis for Koncar - distributivni i specijalni transformatori d.d

An Unusual Tax Situation

We can see that Koncar - distributivni i specijalni transformatori d.d received a tax benefit of Kn17m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Koncar - distributivni i specijalni transformatori d.d.

Our Take On Koncar - distributivni i specijalni transformatori d.d's Profit Performance

As we have already discussed Koncar - distributivni i specijalni transformatori d.d reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Because of this, we think that it may be that Koncar - distributivni i specijalni transformatori d.d's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 33% 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 while earnings quality is important, it's equally important to consider the risks facing Koncar - distributivni i specijalni transformatori d.d at this point in time. At Simply Wall St, we found 2 warning signs for Koncar - distributivni i specijalni transformatori d.d and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Koncar - distributivni i specijalni transformatori d.d's 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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