Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Belon's (MCX:BLNG) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months Belon made a profit of ₽614.7m on revenue of ₽5.60m. Even though revenue is down over the last three years, you can see in the chart below that the company has moved from loss-making to profitable.
Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Belon'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 Belon.
How Do Unusual Items Influence Profit?
To properly understand Belon's profit results, we need to consider the ₽4.5m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 that's as you'd expect, given these boosts are described as 'unusual'. We can see that Belon's positive unusual items were quite significant relative to its profit in the year to December 2019. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On Belon's Profit Performance
As we discussed above, we think the significant positive unusual item makes Belon's earnings a poor guide to its underlying profitability. For this reason, we think that Belon's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Belon has 3 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.
This note has only looked at a single factor that sheds light on the nature of Belon'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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