Does Cooper Companies's (NYSE:COO) Statutory Profit Adequately Reflect Its Underlying Profit?

By
Simply Wall St
Published
November 06, 2020
NYSE:COO

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 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$278.2m on revenue of US$2.44b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

Check out our latest analysis for Cooper Companies

earnings-and-revenue-history
NYSE:COO Earnings and Revenue History November 6th 2020

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?

For anyone who wants to understand Cooper Companies' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$59m 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. 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

Unusual items (expenses) detracted from Cooper Companies' earnings over the last year, but we might see an improvement next year. 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. 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 Cooper Companies, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 3 warning signs with Cooper Companies, and understanding them should be part of your investment process.

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. Some people consider a high return on equity to be a good sign of a quality business. 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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