Shareholders Can Be Confident That BorgWarner's (NYSE:BWA) Earnings Are High Quality

The subdued stock price reaction suggests that BorgWarner Inc.'s (NYSE:BWA) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

View our latest analysis for BorgWarner

The Impact Of Unusual Items On Profit

For anyone who wants to understand BorgWarner's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$148m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If BorgWarner doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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.

Our Take On BorgWarner's Profit Performance

Unusual items (expenses) detracted from BorgWarner's earnings over the last year, but we might see an improvement next year. Because of this, we think BorgWarner's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 25% per year over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into BorgWarner, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for BorgWarner you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of BorgWarner's profit. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.