We Think Tire Company Debica's (WSE:DBC) Solid Earnings Are Understated

Investors signalled that they were pleased with Tire Company Debica S.A.'s (WSE:DBC) most recent earnings report. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

Check out our latest analysis for Tire Company Debica

The Impact Of Unusual Items On Profit

To properly understand Tire Company Debica's profit results, we need to consider the zł108m expense attributed to unusual items. 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, after all, that's exactly what the accounting terminology implies. If Tire Company Debica doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tire Company Debica.

Our Take On Tire Company Debica's Profit Performance

Because unusual items detracted from Tire Company Debica'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 Tire Company Debica's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Tire Company Debica at this point in time. Every company has risks, and we've spotted 2 warning signs for Tire Company Debica you should know about.

This note has only looked at a single factor that sheds light on the nature of Tire Company Debica'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. 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.