Does CIR. Compagnie Industriali Riunite's (BIT:CIR) Statutory Profit Adequately Reflect Its Underlying Profit?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether CIR. Compagnie Industriali Riunite's (BIT:CIR) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months CIR. Compagnie Industriali Riunite made a profit of €134.1m on revenue of €1.92b. Even though revenue is down over the last three years, you can see in the chart below that the company has moved from loss-making to profitable.

Check out our latest analysis for CIR. Compagnie Industriali Riunite

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we'll look at how CIR. Compagnie Industriali Riunite is impacting shareholders by issuing new shares, as well as how unusual items have affected the income line. 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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, CIR. Compagnie Industriali Riunite issued 81% more new shares over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out CIR. Compagnie Industriali Riunite's historical EPS growth by clicking on this link.

How Is Dilution Impacting CIR. Compagnie Industriali Riunite's Earnings Per Share? (EPS)

Three years ago, CIR. Compagnie Industriali Riunite lost money. On the bright side, in the last twelve months it grew profit by 195%. But EPS was less impressive, up only 63% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So CIR. Compagnie Industriali Riunite shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the €15m impact of unusual items in the last year, which had the effect of suppressing profit. 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 CIR. Compagnie Industriali Riunite to produce a higher profit next year, all else being equal.

Our Take On CIR. Compagnie Industriali Riunite's Profit Performance

CIR. Compagnie Industriali Riunite suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, we think it's very unlikely that CIR. Compagnie Industriali Riunite's statutory profits make it seem much weaker than it is. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 4 warning signs for CIR. Compagnie Industriali Riunite (3 are a bit concerning!) and we strongly recommend you look at these bad boys before investing.

Our examination of CIR. Compagnie Industriali Riunite has focussed on certain factors that can make its earnings look better than they are. 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. 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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