Does P.A. Nova's (WSE:NVA) 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. 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. This article will consider whether P.A. Nova's (WSE:NVA) statutory profits are a good guide to its underlying earnings.

While P.A. Nova was able to generate revenue of zł204.0m in the last twelve months, we think its profit result of zł24.8m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for P.A. Nova

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. This article will discuss how unusual items have impacted P.A. Nova's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of P.A. Nova.

How Do Unusual Items Influence Profit?

To properly understand P.A. Nova's profit results, we need to consider the zł6.3m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If P.A. Nova doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On P.A. Nova's Profit Performance

We'd posit that P.A. Nova's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that P.A. Nova's statutory profits are better than its underlying earnings power. And we are pleased to note that EPS is at least heading in the right direction in the alst twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for P.A. Nova (of which 1 can't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on the nature of P.A. Nova's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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