Are Deccan Cements's (NSE:DECCANCE) Statutory Earnings A Good Reflection Of Its 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Deccan Cements (NSE:DECCANCE).

While Deccan Cements was able to generate revenue of ₹5.76b in the last twelve months, we think its profit result of ₹609.5m was more important. The chart below shows that revenue has been pretty flat over the last three years, but profit has increased.

Check out our latest analysis for Deccan Cements

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 Deccan Cements' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Deccan Cements.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Deccan Cements' profit was reduced by ₹96m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Deccan Cements 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 Deccan Cements' Profit Performance

Unusual items (expenses) detracted from Deccan Cements' earnings over the last year, but we might see an improvement next year. Because of this, we think Deccan Cements' 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 43% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 3 warning signs for Deccan Cements and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Deccan Cements' profit. But there are plenty of other ways to inform your opinion of a company. 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 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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