Here's Why We Don't Think Platzer Fastigheter Holding's (STO:PLAZ B) Statutory Earnings Reflect Its Underlying Earnings Potential

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Platzer Fastigheter Holding's (STO:PLAZ B) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Platzer Fastigheter Holding made a profit of kr1.52b on revenue of kr1.22b. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for Platzer Fastigheter Holding

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 discuss how unusual items and a spike in non operating revenue have impacted Platzer Fastigheter Holding's most recent results. 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.

Operating Revenue Or Not?

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. 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. Notably, Platzer Fastigheter Holding had a significant increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from kr1.13b to kr1.21b. The high levels of non-operating are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

The Impact Of Unusual Items On Profit

Alongside that spike in non-operating revenue, it's also important to note that Platzer Fastigheter Holding'sprofit was boosted by unusual items worth kr1.2b in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Platzer Fastigheter Holding's 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 Platzer Fastigheter Holding's Profit Performance

In the last year Platzer Fastigheter Holding's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. Considering all this we'd argue Platzer Fastigheter Holding's profits probably give an overly generous impression of its sustainable level of profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Platzer Fastigheter Holding (of which 1 is a bit unpleasant!) you should know about.

Our examination of Platzer Fastigheter Holding has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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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