Here's Why We Don't Think Kardan Real Estate Enterprise and Development's (TLV:KARE) Statutory Earnings Reflect Its Underlying Earnings Potential

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Kardan Real Estate Enterprise and Development (TLV:KARE).

While Kardan Real Estate Enterprise and Development was able to generate revenue of ₪437.4m in the last twelve months, we think its profit result of ₪30.0m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Kardan Real Estate Enterprise and Development

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 focus on the impact unusual items have had on Kardan Real Estate Enterprise and Development's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kardan Real Estate Enterprise and Development.

How Do Unusual Items Influence Profit?

To properly understand Kardan Real Estate Enterprise and Development's profit results, we need to consider the ₪13m gain attributed to 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Kardan Real Estate Enterprise and Development doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Kardan Real Estate Enterprise and Development's Profit Performance

We'd posit that Kardan Real Estate Enterprise and Development's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Kardan Real Estate Enterprise and Development's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 5 warning signs for Kardan Real Estate Enterprise and Development you should be mindful of and 2 of these are significant.

This note has only looked at a single factor that sheds light on the nature of Kardan Real Estate Enterprise and Development'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 that insiders are buying.

If you decide to trade Kardan Real Estate Enterprise and Development, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.