Does Carel Industries’s (BIT:CRL) 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. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Carel Industries (BIT:CRL).

It’s good to see that over the last twelve months Carel Industries made a profit of €34.2m on revenue of €320.4m. In the chart below, you can see that its profit and revenue have both grown over the last three years.

Check out our latest analysis for Carel Industries

BIT:CRL Income Statement, January 16th 2020
BIT:CRL Income Statement, January 16th 2020

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. This article will discuss how unusual items have impacted Carel Industries’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?

For anyone who wants to understand Carel Industries’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by €8.5m 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 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 Carel Industries to produce a higher profit next year, all else being equal.

Our Take On Carel Industries’s Profit Performance

Because unusual items detracted from Carel Industries’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 Carel Industries’s statutory profit actually understates its earnings potential! And the EPS is up 39% annually, over the last three years. 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. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. Luckily, you can check out what analysts are forecsting by clicking here.

This note has only looked at a single factor that sheds light on the nature of Carel Industries’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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.