Are Livestock Improvement's (NZSE:LIC) Statutory Earnings A Good Guide To Its Underlying Profitability?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Livestock Improvement (NZSE:LIC).

It's good to see that over the last twelve months Livestock Improvement made a profit of NZ$17.5m on revenue of NZ$254.0m. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

View our latest analysis for Livestock Improvement

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 focus on the impact unusual items have had on Livestock Improvement's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Livestock Improvement.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Livestock Improvement's profit was reduced by NZ$7.2m, 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 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 Livestock Improvement to produce a higher profit next year, all else being equal.

Our Take On Livestock Improvement's Profit Performance

Because unusual items detracted from Livestock Improvement'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 Livestock Improvement's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you want to do dive deeper into Livestock Improvement, you'd also look into what risks it is currently facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Livestock Improvement.

Today we've zoomed in on a single data point to better understand the nature of Livestock Improvement'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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