We Think That There Are Issues Underlying Atrium Ljungberg's (STO:ATRLJ B) Earnings

Investors were disappointed with Atrium Ljungberg AB (publ)'s (STO:ATRLJ B) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

See our latest analysis for Atrium Ljungberg

Operating Revenue Or Not?

Most companies divide classify their revenue as either 'operating revenue', which comes from normal operations, and other revenue, which could include government grants, for example. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. It's worth noting that Atrium Ljungberg saw a big increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from kr618.0m last year to kr1.04b this year. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

On top of the non-operating revenue spike, we should also consider the kr304m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Atrium Ljungberg to produce a higher profit next year, all else being equal.

Our Take On Atrium Ljungberg's Profit Performance

In the last year Atrium Ljungberg's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. But on the other hand, it also saw an unusual item depress its profit, suggesting the statutory profit number will actually improve next year, if the unusual expenses are not repeated, and all else stays equal. Having considered these factors, we don't think Atrium Ljungberg's statutory profits give an overly harsh view of the business. If you'd like to know more about Atrium Ljungberg as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Atrium Ljungberg (of which 1 doesn't sit too well with us!) you should know about.

Our examination of Atrium Ljungberg has focussed on certain factors that can make its earnings look better than they are. 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 with significant insider holdings to be useful.

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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.