Are Pfizer's (NSE:PFIZER) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
November 03, 2020
NSEI:PFIZER

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 Pfizer (NSE:PFIZER).

While Pfizer was able to generate revenue of ₹21.0b in the last twelve months, we think its profit result of ₹4.98b was more important. Happily, it has grown both its profit and revenue over the last three years (but not in the last year), as you can see in the chart below.

See our latest analysis for Pfizer

earnings-and-revenue-history
NSEI:PFIZER Earnings and Revenue History November 4th 2020

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 Pfizer's statutory earnings. 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?

For anyone who wants to understand Pfizer's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹466m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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. Because of this, we think that it may be that Pfizer's statutory profits are better than its underlying earnings power. 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. You can see our latest analysis on Pfizer's balance sheet health here.

Today we've zoomed in on a single data point to better understand 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. 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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