Are Adani Ports and Special Economic Zone's (NSE:ADANIPORTS) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Adani Ports and Special Economic Zone (NSE:ADANIPORTS).

We like the fact that Adani Ports and Special Economic Zone made a profit of ₹38.3b on its revenue of ₹110.2b, in the last year. As shown in the chart below, it did manage to grow its revenue over the last three years, although its profit has been pretty flat.

View our latest analysis for Adani Ports and Special Economic Zone

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Adani Ports and Special Economic Zone's most recent profit results. 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.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Adani Ports and Special Economic Zone's profit received a boost of ₹3.9b 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. Which is hardly surprising, given the name. If Adani Ports and Special Economic Zone doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Adani Ports and Special Economic Zone's Profit Performance

We'd posit that Adani Ports and Special Economic Zone's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Adani Ports and Special Economic Zone's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Adani Ports and Special Economic Zone at this point in time. At Simply Wall St, we found 3 warning signs for Adani Ports and Special Economic Zone and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Adani Ports and Special Economic Zone'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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