Should You Use Chelyabinsk Metallurgical Plant PAO's (MCX:CHMK) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding Chelyabinsk Metallurgical Plant PAO (MCX:CHMK).

While Chelyabinsk Metallurgical Plant PAO was able to generate revenue of ₽111.2b in the last twelve months, we think its profit result of ₽922.1m was more important. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Chelyabinsk Metallurgical Plant PAO

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 focus on the impact unusual items have had on Chelyabinsk Metallurgical Plant PAO's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chelyabinsk Metallurgical Plant PAO.

The Impact Of Unusual Items On Profit

To properly understand Chelyabinsk Metallurgical Plant PAO's profit results, we need to consider the ₽307m 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. Which is hardly surprising, given the name. If Chelyabinsk Metallurgical Plant PAO 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 Chelyabinsk Metallurgical Plant PAO's Profit Performance

Arguably, Chelyabinsk Metallurgical Plant PAO's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Chelyabinsk Metallurgical Plant PAO's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Chelyabinsk Metallurgical Plant PAO at this point in time. For example, Chelyabinsk Metallurgical Plant PAO has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Chelyabinsk Metallurgical Plant PAO's profit. But there are plenty of other ways to inform your opinion of a company. 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 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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