We're Not Counting On Atrium Ljungberg (STO:ATRLJ B) To Sustain Its Statutory Profitability

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Atrium Ljungberg's (STO:ATRLJ B) statutory profits are a good guide to its underlying earnings.

While Atrium Ljungberg was able to generate revenue of kr2.90b in the last twelve months, we think its profit result of kr1.22b 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 Atrium Ljungberg

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. We therefore think it is well worthwhile to discuss how a recent spike in Atrium Ljungberg's non-operating revenue has shaped its statutory profit result. 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.

The Power Of Non-Operating Revenue

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. 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 kr188.8m last year to kr471.0m this year. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

Our Take On Atrium Ljungberg's Profit Performance

Because Atrium Ljungberg's non-operating revenue spiked quite noticeably last year, you could argue that a focus on statutory profit would be too generous because profits may drop back in the future (when that non-operating revenue is not repeated). As a result, we think it may well be the case that Atrium Ljungberg's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Atrium Ljungberg is showing 2 warning signs in our investment analysis and 1 of those is potentially serious...

Today we've zoomed in on a single data point to better understand the nature of Atrium Ljungberg'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. 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 that insiders are buying to be useful.

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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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