Are Danieli & C. Officine Meccaniche's (BIT:DAN) Statutory Earnings A Good Guide To Its Underlying Profitability?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. This article will consider whether Danieli & C. Officine Meccaniche's (BIT:DAN) statutory profits are a good guide to its underlying earnings.

We like the fact that Danieli & C. Officine Meccaniche made a profit of €62.9m on its revenue of €2.38b, in the last year. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

View our latest analysis for Danieli & C. Officine Meccaniche

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 focus on the impact unusual items have had on Danieli & C. Officine Meccaniche's statutory earnings. 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.

The Impact Of Unusual Items On Profit

To properly understand Danieli & C. Officine Meccaniche's profit results, we need to consider the €31m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Danieli & C. Officine Meccaniche to produce a higher profit next year, all else being equal.

Our Take On Danieli & C. Officine Meccaniche's Profit Performance

Because unusual items detracted from Danieli & C. Officine Meccaniche's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Danieli & C. Officine Meccaniche's statutory profit actually understates its earnings potential! And the EPS is up 25% annually, over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Danieli & C. Officine Meccaniche, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Danieli & C. Officine Meccaniche'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. 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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