Recordati Industria Chimica e Farmaceutica's (BIT:REC) Conservative Accounting Might Explain Soft Earnings

The market for Recordati Industria Chimica e Farmaceutica S.p.A.'s (BIT:REC) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Recordati Industria Chimica e Farmaceutica

The Impact Of Unusual Items On Profit

For anyone who wants to understand Recordati Industria Chimica e Farmaceutica's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €103m due 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. If Recordati Industria Chimica e Farmaceutica doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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.

Our Take On Recordati Industria Chimica e Farmaceutica's Profit Performance

Because unusual items detracted from Recordati Industria Chimica e Farmaceutica's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Recordati Industria Chimica e Farmaceutica's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Recordati Industria Chimica e Farmaceutica.

This note has only looked at a single factor that sheds light on the nature of Recordati Industria Chimica e Farmaceutica's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.