We Think That There Are More Issues For Turism Hoteluri Restaurante Marea Neagra (BVB:EFO) Than Just Sluggish Earnings

A lackluster earnings announcement from Turism, Hoteluri, Restaurante Marea Neagra S.A. (BVB:EFO) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Turism Hoteluri Restaurante Marea Neagra

Operating Revenue Or Not?

Companies will classify their revenue streams as either operating revenue or other revenue. Oftentimes, non-operating revenue spikes are not repeated, so it makes sense to be cautious where non-operating revenue has made a very large contribution to total profit. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. It's worth noting that Turism Hoteluri Restaurante Marea Neagra saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from RON174.8k to RON18.0m. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Turism Hoteluri Restaurante Marea Neagra.

The Impact Of Unusual Items On Profit

Alongside that spike in non-operating revenue, it's also important to note that Turism Hoteluri Restaurante Marea Neagra'sprofit suffered from unusual items, which reduced profit by RON6.0m in the last twelve months. 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 Turism Hoteluri Restaurante Marea Neagra to produce a higher profit next year, all else being equal.

Our Take On Turism Hoteluri Restaurante Marea Neagra's Profit Performance

In the last year Turism Hoteluri Restaurante Marea Neagra's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. Having said that, it also took a hit from unusual items, which could bode well for next year, assuming the expense was one-off in nature. Having considered these factors, we don't think Turism Hoteluri Restaurante Marea Neagra's statutory profits give an overly harsh view of the business. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 5 warning signs for Turism Hoteluri Restaurante Marea Neagra you should know about.

Our examination of Turism Hoteluri Restaurante Marea Neagra has focussed on certain factors that can make its earnings look better than they are. 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 with significant insider holdings to be useful.

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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.