Does American Shipping's (OB:AMSC) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding American Shipping (OB:AMSC).

It's good to see that over the last twelve months American Shipping made a profit of US$2.00m on revenue of US$88.1m. The chart below shows that revenue has been flat over the last three years, while profit has actually declined.

See our latest analysis for American Shipping

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 focus on the impact unusual items have had on American Shipping's statutory earnings. 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 American Shipping's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$9.1m 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. Assuming those unusual expenses don't come up again, we'd therefore expect American Shipping to produce a higher profit next year, all else being equal.

Our Take On American Shipping's Profit Performance

Because unusual items detracted from American Shipping'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 American Shipping's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing American Shipping at this point in time. Every company has risks, and we've spotted 4 warning signs for American Shipping (of which 2 are concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of American Shipping'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. 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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