We Think Polaris Media's (OB:POL) Solid Earnings Are Understated

Investors signalled that they were pleased with Polaris Media ASA's (OB:POL) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

Check out our latest analysis for Polaris Media

How Do Unusual Items Influence Profit?

For anyone who wants to understand Polaris Media's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by kr121m 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. Polaris Media took a rather significant hit from unusual items in the year to June 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Polaris Media received a tax benefit of kr22m. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Polaris Media's Profit Performance

In the last year Polaris Media 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. But on the other hand, it also saw an unusual item depress its profit. After taking into account all these factors, we think that Polaris Media's statutory results are a decent reflection of its underlying earnings power. If you want to do dive deeper into Polaris Media, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Polaris Media you should be aware of.

Our examination of Polaris Media has focussed on certain factors that can make its earnings look better than they are. 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 with significant insider holdings 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.