Investors Can Find Comfort In Urals Stampings Plant PAO's (MCX:URKZ) Earnings Quality

By
Simply Wall St
Published
February 22, 2021
MISX:URKZ
Source: Shutterstock

Shareholders appeared unconcerned with Urals Stampings Plant PAO's (MCX:URKZ) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Urals Stampings Plant PAO

earnings-and-revenue-history
MISX:URKZ Earnings and Revenue History February 23rd 2021

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Urals Stampings Plant PAO's profit was reduced by ₽117m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Urals Stampings Plant PAO to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Urals Stampings Plant PAO.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Urals Stampings Plant PAO received a tax benefit which contributed ₽90m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Urals Stampings Plant PAO's Profit Performance

In the last year Urals Stampings Plant PAO received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Given the contrasting considerations, we don't have a strong view as to whether Urals Stampings Plant PAO's profits are an apt reflection of its underlying potential for profit. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. You can see our latest analysis on Urals Stampings Plant PAO's balance sheet health here.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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