Are ERG's (BIT:ERG) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
January 07, 2021

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether ERG's (BIT:ERG) statutory profits are a good guide to its underlying earnings.

While ERG was able to generate revenue of €992.8m in the last twelve months, we think its profit result of €35.7m was more important. The chart below shows that both revenue and profit have declined over the last three years.

View our latest analysis for ERG

BIT:ERG Earnings and Revenue History January 7th 2021

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted ERG'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.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that ERG's profit was reduced by €30m, due to unusual items, over the last year. 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. If ERG doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On ERG's Profit Performance

Because unusual items detracted from ERG'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 ERG's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing ERG at this point in time. For instance, we've identified 4 warning signs for ERG (1 is concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of ERG'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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