Does Ezdan Holding Group Q.P.S.C's (DSM:ERES) Statutory Profit Adequately Reflect Its Underlying Profit?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Ezdan Holding Group Q.P.S.C (DSM:ERES).

It's good to see that over the last twelve months Ezdan Holding Group Q.P.S.C made a profit of ر.ق8.67m on revenue of ر.ق1.31b. The chart below shows that both revenue and profit have declined over the last three years.

See our latest analysis for Ezdan Holding Group Q.P.S.C

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 discuss how unusual items have impacted Ezdan Holding Group Q.P.S.C'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 Ezdan Holding Group Q.P.S.C.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ezdan Holding Group Q.P.S.C's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ر.ق100m due 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 Ezdan Holding Group Q.P.S.C doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Ezdan Holding Group Q.P.S.C's Profit Performance

Because unusual items detracted from Ezdan Holding Group Q.P.S.C's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Ezdan Holding Group Q.P.S.C's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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 Ezdan Holding Group Q.P.S.C at this point in time. Case in point: We've spotted 5 warning signs for Ezdan Holding Group Q.P.S.C you should be mindful of and 2 of them shouldn't be ignored.

This note has only looked at a single factor that sheds light on the nature of Ezdan Holding Group Q.P.S.C's 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. 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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