Should You Use Grupa Azoty's (WSE:ATT) Statutory Earnings To Analyse It?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Grupa Azoty's (WSE:ATT) statutory profits are a good guide to its underlying earnings.

While Grupa Azoty was able to generate revenue of zł10.4b in the last twelve months, we think its profit result of zł215.3m was more important. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for Grupa Azoty

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Grupa Azoty'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?

To properly understand Grupa Azoty's profit results, we need to consider the zł72m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Grupa Azoty to produce a higher profit next year, all else being equal.

Our Take On Grupa Azoty's Profit Performance

Unusual items (expenses) detracted from Grupa Azoty's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Grupa Azoty's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 2 warning signs for Grupa Azoty you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Grupa Azoty'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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