Star Cement's (NSE:STARCEMENT) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Star Cement Limited's (NSE:STARCEMENT) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for Star Cement

The Impact Of Unusual Items On Profit

For anyone who wants to understand Star Cement's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₹646m due 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Star Cement to produce a higher profit next year, all else being equal.

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 Star Cement's Profit Performance

Because unusual items detracted from Star Cement'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 Star Cement'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. 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. So while earnings quality is important, it's equally important to consider the risks facing Star Cement at this point in time. While conducting our analysis, we found that Star Cement has 2 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of Star Cement'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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