We Wouldn't Rely On Mecanica Fina's (BVB:MECE) Statutory Earnings As A Guide

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 Mecanica Fina (BVB:MECE).

We like the fact that Mecanica Fina made a profit of RON7.13m on its revenue of RON16.0m, in the last year.

See our latest analysis for Mecanica Fina

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 Mecanica Fina's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mecanica Fina.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Mecanica Fina's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RON7.1m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Mecanica Fina's positive unusual items were quite significant relative to its profit in the year to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Mecanica Fina's Profit Performance

As previously mentioned, Mecanica Fina's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Mecanica Fina's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for Mecanica Fina you should be mindful of and 1 of these is a bit unpleasant.

Today we've zoomed in on a single data point to better understand the nature of Mecanica Fina'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. 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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