Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Cooper Companies' (NYSE:COO) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months Cooper Companies made a profit of US$238.4m on revenue of US$2.43b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.
Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Cooper Companies' statutory earnings. 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.
How Do Unusual Items Influence Profit?
To properly understand Cooper Companies' profit results, we need to consider the US$90m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Cooper Companies to produce a higher profit next year, all else being equal.
Our Take On Cooper Companies' Profit Performance
Because unusual items detracted from Cooper Companies' 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 Cooper Companies' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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 Cooper Companies as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Cooper Companies has 3 warning signs and it would be unwise to ignore them.
This note has only looked at a single factor that sheds light on the nature of Cooper Companies' 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 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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