Rani Zim Shopping Centers' (TLV:RANI) Earnings Might Be Weaker Than You Think

Shareholders were pleased with the recent earnings report from Rani Zim Shopping Centers Ltd (TLV:RANI). Investors should be cautious however, as there some causes of concern deeper in the numbers.

View our latest analysis for Rani Zim Shopping Centers

Operating Revenue Or Not?

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Oftentimes, non-operating revenue spikes are not repeated, so it makes sense to be cautious where non-operating revenue has made a very large contribution to total profit. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. Notably, Rani Zim Shopping Centers had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from -₪1.02m last year to ₪53.3m this year. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Rani Zim Shopping Centers.

How Do Unusual Items Influence Profit?

As well as that spike in non-operating revenue, we should also consider the ₪208m boost to profit coming from unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Rani Zim Shopping Centers had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Rani Zim Shopping Centers' Profit Performance

In its last report Rani Zim Shopping Centers benefitted from a spike in non-operating revenue which may have boosted its profit in a way that may be no more sustainable than low quality coal mining. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated and everything else is equal. For all the reasons mentioned above, we think that, at a glance, Rani Zim Shopping Centers' statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company. If you'd like to know more about Rani Zim Shopping Centers as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Rani Zim Shopping Centers (including 1 which doesn't sit too well with us).

Our examination of Rani Zim Shopping Centers has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.