Impressive Earnings May Not Tell The Whole Story For Imperial Riviera d.d (ZGSE:HIMR)

Imperial Riviera d.d.'s (ZGSE:HIMR) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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An Unusual Tax Situation

We can see that Imperial Riviera d.d received a tax benefit of €3.7m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. The receipt of a tax benefit is obviously a good thing, on its own. 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. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Imperial Riviera d.d.

Our Take On Imperial Riviera d.d's Profit Performance

As we have already discussed Imperial Riviera d.d reported that it received a tax benefit, rather than paying tax, in the last year. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Because of this, we think that it may be that Imperial Riviera d.d's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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 Imperial Riviera d.d at this point in time. For instance, we've identified 3 warning signs for Imperial Riviera d.d (1 is a bit concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Imperial Riviera d.d'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 with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.