We're Not Counting On Moscow City Telephone Network (MCX:MGTS) To Sustain Its Statutory Profitability

Broadly speaking, profitable businesses are less risky than 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 Moscow City Telephone Network (MCX:MGTS).

It's good to see that over the last twelve months Moscow City Telephone Network made a profit of ₽11.5b on revenue of ₽40.5b. As you can see in the chart below, it has grown its profits over the last three years, despite the fact its revenue has been steady.

See our latest analysis for Moscow City Telephone Network

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 Moscow City Telephone Network's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Moscow City Telephone Network.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Moscow City Telephone Network's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₽5.6b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Moscow City Telephone Network had a rather significant contribution from unusual items relative to its profit to June 2020. 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 Moscow City Telephone Network's Profit Performance

As we discussed above, we think the significant positive unusual item makes Moscow City Telephone Network'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Moscow City Telephone Network's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 14% over the last three years. 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. For example - Moscow City Telephone Network has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Moscow City Telephone Network's profit. 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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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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