Are Koncar - Elektroindustrija d.d's (ZGSE:KOEI) Statutory Earnings A Good Guide To Its Underlying Profitability?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Koncar - Elektroindustrija d.d's (ZGSE:KOEI) statutory profits are a good guide to its underlying earnings.

While Koncar - Elektroindustrija d.d was able to generate revenue of Kn3.04b in the last twelve months, we think its profit result of Kn48.3m was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

See our latest analysis for Koncar - Elektroindustrija d.d

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 Koncar - Elektroindustrija d.d'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.

How Do Unusual Items Influence Profit?

To properly understand Koncar - Elektroindustrija d.d's profit results, we need to consider the Kn35m 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. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Koncar - Elektroindustrija d.d to produce a higher profit next year, all else being equal.

Our Take On Koncar - Elektroindustrija d.d's Profit Performance

Because unusual items detracted from Koncar - Elektroindustrija d.d's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Koncar - Elektroindustrija d.d's statutory profit actually understates its earnings potential! And the EPS is up 23% over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Koncar - Elektroindustrija d.d has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Koncar - Elektroindustrija 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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