Eternal's (NSE:ETERNAL) Problems Go Beyond Weak Profit

The market wasn't impressed with the soft earnings from Eternal Limited (NSE:ETERNAL) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Eternal's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹1.5b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Eternal doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Eternal's Profit Performance

Arguably, Eternal's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Eternal's true underlying earnings power is actually less than its statutory profit. 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. If you'd like to know more about Eternal as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Eternal, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Eternal'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. 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 with significant insider holdings to be useful.

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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.