Are Bharat Petroleum's (NSE:BPCL) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
October 30, 2020
NSEI:BPCL

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Bharat Petroleum (NSE:BPCL).

It's good to see that over the last twelve months Bharat Petroleum made a profit of ₹42.3b on revenue of ₹2.40t. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

Check out our latest analysis for Bharat Petroleum

earnings-and-revenue-history
NSEI:BPCL Earnings and Revenue History October 31st 2020

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 discuss how unusual items have impacted Bharat Petroleum's most recent profit results. 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.

The Impact Of Unusual Items On Profit

To properly understand Bharat Petroleum's profit results, we need to consider the ₹20b expense attributed 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. If Bharat Petroleum doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Bharat Petroleum's Profit Performance

Because unusual items detracted from Bharat Petroleum'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 Bharat Petroleum's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 3 warning signs for Bharat Petroleum and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Bharat Petroleum'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 that insiders are buying to be useful.

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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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