Are Millennium & Copthorne Hotels New Zealand's (NZSE:MCK) Statutory Earnings A Good Reflection Of Its Earnings Potential?

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 Millennium & Copthorne Hotels New Zealand (NZSE:MCK).

It's good to see that over the last twelve months Millennium & Copthorne Hotels New Zealand made a profit of NZ$46.0m on revenue of NZ$172.0m. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

Check out our latest analysis for Millennium & Copthorne Hotels New Zealand

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. Therefore, we think it makes sense to note and understand the impact that a tax benefit has had on Millennium & Copthorne Hotels New Zealand's statutory profit in the last twelve months. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Millennium & Copthorne Hotels New Zealand.

An Unusual Tax Situation

Millennium & Copthorne Hotels New Zealand reported a tax benefit of NZ$5.4m, which is well worth noting. 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. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Millennium & Copthorne Hotels New Zealand's Profit Performance

As we have already discussed Millennium & Copthorne Hotels New Zealand reported that it received a tax benefit, rather than paying tax, in the last year. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Therefore, it seems possible to us that Millennium & Copthorne Hotels New Zealand's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 6.5% over the last three years. 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. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Millennium & Copthorne Hotels New Zealand's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Millennium & Copthorne Hotels New Zealand'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. 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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