Umm Al-Qura Cement's (TADAWUL:3005) Earnings Are Of Questionable Quality

Umm Al-Qura Cement Company's (TADAWUL:3005) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Umm Al-Qura Cement

The Impact Of Unusual Items On Profit

For anyone who wants to understand Umm Al-Qura Cement's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ر.س9.6m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Umm Al-Qura Cement.

Our Take On Umm Al-Qura Cement's Profit Performance

Arguably, Umm Al-Qura Cement's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Umm Al-Qura Cement's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Umm Al-Qura Cement (including 1 which shouldn't be ignored).

This note has only looked at a single factor that sheds light on the nature of Umm Al-Qura Cement's profit. 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.