We Think That There Are Issues Underlying Caltagirone Editore's (BIT:CED) Earnings

By
Simply Wall St
Published
March 16, 2022
BIT:CED
Source: Shutterstock

Caltagirone Editore SpA's (BIT:CED) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Caltagirone Editore

earnings-and-revenue-history
BIT:CED Earnings and Revenue History March 16th 2022

The Impact Of Unusual Items On Profit

For anyone who wants to understand Caltagirone Editore's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €1.0m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Caltagirone Editore to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Caltagirone Editore.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Caltagirone Editore received a tax benefit of €7.2m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. The receipt of a tax benefit is obviously a good thing, on its own. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Caltagirone Editore's Profit Performance

In the last year Caltagirone Editore received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Having considered these factors, we don't think Caltagirone Editore's statutory profits give an overly harsh view of the business. If you'd like to know more about Caltagirone Editore as a business, it's important to be aware of any risks it's facing. For example - Caltagirone Editore has 1 warning sign we think you should be aware of.

Our examination of Caltagirone Editore has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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