We Think Koninklijke Philips' (AMS:PHIA) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from Koninklijke Philips N.V. (AMS:PHIA) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Koninklijke Philips' profit was reduced by €446m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Koninklijke Philips to produce a higher profit next year, all else being equal.

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 Koninklijke Philips' Profit Performance

Because unusual items detracted from Koninklijke Philips' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Koninklijke Philips' earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for Koninklijke Philips you should be mindful of and 2 of them shouldn't be ignored.

This note has only looked at a single factor that sheds light on the nature of Koninklijke Philips' 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 with high insider ownership.

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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.