Airport City's (TLV:ARPT) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Airport City Ltd.'s (TLV:ARPT) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Airport City

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Airport City's profit was reduced by ₪149m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Airport City to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Airport City.

Our Take On Airport City's Profit Performance

Unusual items (expenses) detracted from Airport City's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Airport City's statutory profit actually understates its earnings potential! And the EPS is up 36% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 4 warning signs for Airport City (of which 2 shouldn't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Airport City's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.