Are Zee Learn's (NSE:ZEELEARN) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. This article will consider whether Zee Learn's (NSE:ZEELEARN) statutory profits are a good guide to its underlying earnings.

While Zee Learn was able to generate revenue of ₹5.15b in the last twelve months, we think its profit result of ₹436.9m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

Check out our latest analysis for Zee Learn

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Zee Learn's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zee Learn.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Zee Learn's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹311m due to unusual items. 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 Zee Learn to produce a higher profit next year, all else being equal.

Our Take On Zee Learn's Profit Performance

Because unusual items detracted from Zee Learn's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Zee Learn's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 28% per year 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. If you'd like to know more about Zee Learn as a business, it's important to be aware of any risks it's facing. For example, Zee Learn has 6 warning signs (and 1 which is significant) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Zee Learn's profit. But there are plenty of other ways to inform your opinion of a company. 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.

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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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