We Wouldn't Rely On Mediterranean Towers's (TLV:MDTR) Statutory Earnings As A Guide

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 Mediterranean Towers (TLV:MDTR).

While Mediterranean Towers was able to generate revenue of ₪205.2m in the last twelve months, we think its profit result of ₪67.9m 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 Mediterranean Towers

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Mediterranean Towers' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mediterranean Towers.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Mediterranean Towers' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₪95m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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'. We can see that Mediterranean Towers' positive unusual items were quite significant relative to its profit in the year to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Mediterranean Towers' Profit Performance

As we discussed above, we think the significant positive unusual item makes Mediterranean Towers'earnings a poor guide to its underlying profitability. For this reason, we think that Mediterranean Towers' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 6.7% EPS growth in the 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'd like to know more about Mediterranean Towers as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 5 warning signs (2 are potentially serious!) that you ought to be aware of before buying any shares in Mediterranean Towers.

This note has only looked at a single factor that sheds light on the nature of Mediterranean Towers' 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. 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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