We Think You Can Look Beyond Gujarat Narmada Valley Fertilizers & Chemicals' (NSE:GNFC) Lackluster Earnings

Gujarat Narmada Valley Fertilizers & Chemicals Limited's (NSE:GNFC) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

Check out our latest analysis for Gujarat Narmada Valley Fertilizers & Chemicals

The Impact Of Unusual Items On Profit

To properly understand Gujarat Narmada Valley Fertilizers & Chemicals' profit results, we need to consider the ₹462m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Gujarat Narmada Valley Fertilizers & Chemicals to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gujarat Narmada Valley Fertilizers & Chemicals.

Our Take On Gujarat Narmada Valley Fertilizers & Chemicals' Profit Performance

Unusual items (expenses) detracted from Gujarat Narmada Valley Fertilizers & Chemicals' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Gujarat Narmada Valley Fertilizers & Chemicals' statutory profit actually understates its earnings potential! 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. So while earnings quality is important, it's equally important to consider the risks facing Gujarat Narmada Valley Fertilizers & Chemicals at this point in time. You'd be interested to know, that we found 2 warning signs for Gujarat Narmada Valley Fertilizers & Chemicals and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Gujarat Narmada Valley Fertilizers & Chemicals' 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.