Statistically speaking, it is less risky to invest in profitable companies than in 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 Seaboard's (NYSEMKT:SEB) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months Seaboard made a profit of US$193.0m on revenue of US$6.95b. The chart below shows how it has grown revenue over the last three years, but that profit has declined.
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 have impacted Seaboard's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Seaboard.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Seaboard's profit was reduced by US$41m, 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Seaboard doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Our Take On Seaboard's Profit Performance
Because unusual items detracted from Seaboard'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 Seaboard's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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. If you'd like to know more about Seaboard as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Seaboard, and understanding this should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of Seaboard'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. 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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