Broadly speaking, profitable businesses are less risky than 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. This article will consider whether REN - Redes Energéticas Nacionais SGPS' (ELI:RENE) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months REN - Redes Energéticas Nacionais SGPS made a profit of €108.6m on revenue of €731.6m. As you can see below, its profit has actually declined over the last three years, even though its revenue was flat.
Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on REN - Redes Energéticas Nacionais SGPS' 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.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that REN - Redes Energéticas Nacionais SGPS' profit was reduced by €31m, due to unusual items, over the last year. 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 REN - Redes Energéticas Nacionais SGPS to produce a higher profit next year, all else being equal.
Our Take On REN - Redes Energéticas Nacionais SGPS' Profit Performance
Unusual items (expenses) detracted from REN - Redes Energéticas Nacionais SGPS' earnings over the last year, but we might see an improvement next year. Because of this, we think REN - Redes Energéticas Nacionais SGPS' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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 while earnings quality is important, it's equally important to consider the risks facing REN - Redes Energéticas Nacionais SGPS at this point in time. Every company has risks, and we've spotted 2 warning signs for REN - Redes Energéticas Nacionais SGPS you should know about.
Today we've zoomed in on a single data point to better understand the nature of REN - Redes Energéticas Nacionais SGPS' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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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