Are Mälaråsen's (NGM:MALAR) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. This article will consider whether Mälaråsen's (NGM:MALAR) statutory profits are a good guide to its underlying earnings.

While Mälaråsen was able to generate revenue of kr62.9m in the last twelve months, we think its profit result of kr22.3m was more important. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

View our latest analysis for Mälaråsen

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

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Mälaråsen's profit was reduced by kr9.5m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Mälaråsen to produce a higher profit next year, all else being equal.

Our Take On Mälaråsen's Profit Performance

Because unusual items detracted from Mälaråsen's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Mälaråsen's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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. When we did our research, we found 5 warning signs for Mälaråsen (1 is a bit unpleasant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Mälaråsen'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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