Are Pfizer's (NSE:PFIZER) Statutory Earnings A Good Guide To Its Underlying Profitability?

By
Simply Wall St
Published
February 02, 2021
NSEI:PFIZER
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Statistically speaking, it is less risky to invest in profitable companies than in 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Pfizer (NSE:PFIZER).

We like the fact that Pfizer made a profit of ₹4.98b on its revenue of ₹21.5b, in the last year. 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 Pfizer

earnings-and-revenue-history
NSEI:PFIZER Earnings and Revenue History February 3rd 2021

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Pfizer's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Pfizer.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Pfizer's profit received a boost of ₹466m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Pfizer's Profit Performance

Arguably, Pfizer's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Pfizer's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 67% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Pfizer's balance sheet by clicking here.

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