Stock Analysis

We Wouldn't Rely On Ratio Oil Exploration (1992) Limited Partnership's (TLV:RATI.L) Statutory Earnings As A Guide

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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. In this article, we'll look at how useful this year's statutory profit is, when analysing Ratio Oil Exploration (1992) Limited Partnership (TLV:RATI.L).

It's good to see that over the last twelve months Ratio Oil Exploration (1992) Limited Partnership made a profit of US$21.5m on revenue of US$120.9m. Even though revenue has remained steady over the last three years, you can see in the chart below that the company has moved from loss-making to profitable.

Check out our latest analysis for Ratio Oil Exploration (1992) Limited Partnership

TASE:RATI.L Earnings and Revenue History December 17th 2020

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 Ratio Oil Exploration (1992) Limited Partnership's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ratio Oil Exploration (1992) Limited Partnership.

The Impact Of Unusual Items On Profit

To properly understand Ratio Oil Exploration (1992) Limited Partnership's profit results, we need to consider the US$24m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Ratio Oil Exploration (1992) Limited Partnership had a rather significant contribution from unusual items relative to its profit to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Ratio Oil Exploration (1992) Limited Partnership's Profit Performance

As previously mentioned, Ratio Oil Exploration (1992) Limited Partnership's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Ratio Oil Exploration (1992) Limited Partnership's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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 want to do dive deeper into Ratio Oil Exploration (1992) Limited Partnership, you'd also look into what risks it is currently facing. Our analysis shows 2 warning signs for Ratio Oil Exploration (1992) Limited Partnership (1 makes us a bit uncomfortable!) and we strongly recommend you look at these bad boys before investing.

This note has only looked at a single factor that sheds light on the nature of Ratio Oil Exploration (1992) Limited Partnership's profit. But there are plenty of other ways to inform your opinion of a company. 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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