Weak Statutory Earnings May Not Tell The Whole Story For Naftna Industrija Srbije a.d (BELEX:NIIS)

Naftna Industrija Srbije a.d.'s (BELEX:NIIS) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Naftna Industrija Srbije a.d

Operating Revenue Or Not?

Companies will classify their revenue streams as either operating revenue or other revenue. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. 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 Naftna Industrija Srbije a.d saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from дин27.6b to дин47.6b. 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. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

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

Alongside that spike in non-operating revenue, it's also important to note that Naftna Industrija Srbije a.d'sprofit was boosted by unusual items worth дин8.8b in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Naftna Industrija Srbije a.d doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Naftna Industrija Srbije a.d's Profit Performance

In its last report Naftna Industrija Srbije a.d benefitted from a spike in non-operating revenue which may have boosted its profit in a way that may be no more sustainable than low quality coal mining. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. For the reasons mentioned above, we think that a perfunctory glance at Naftna Industrija Srbije a.d's statutory profits might make it look better than it really is on an underlying level. 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. Every company has risks, and we've spotted 3 warning signs for Naftna Industrija Srbije a.d you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.