We're Not So Sure You Should Rely on Tingsvalvet Fastighets's (NGM:TINGS) Statutory Earnings

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 Tingsvalvet Fastighets' (NGM:TINGS) statutory profits are a good guide to its underlying earnings.

While Tingsvalvet Fastighets was able to generate revenue of kr69.7m in the last twelve months, we think its profit result of kr75.5m was more important.

See our latest analysis for Tingsvalvet Fastighets

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Tingsvalvet Fastighets' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tingsvalvet Fastighets.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Tingsvalvet Fastighets' profit received a boost of kr65m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that Tingsvalvet Fastighets' positive unusual items were quite significant relative to its profit in the year to September 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 Tingsvalvet Fastighets' Profit Performance

As previously mentioned, Tingsvalvet Fastighets' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Tingsvalvet Fastighets' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Tingsvalvet Fastighets at this point in time. Case in point: We've spotted 5 warning signs for Tingsvalvet Fastighets you should be mindful of and 1 of them is a bit concerning.

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