Should You Use Silgan Holdings’s (NASDAQ:SLGN) Statutory Earnings To Analyse It?

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 Silgan Holdings‘s (NASDAQ:SLGN) statutory profits are a good guide to its underlying earnings.

We like the fact that Silgan Holdings made a profit of US$197.2m on its revenue of US$4.51b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

See our latest analysis for Silgan Holdings

NasdaqGS:SLGN Income Statement, January 9th 2020
NasdaqGS:SLGN Income Statement, January 9th 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 Silgan Holdings’s 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.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Silgan Holdings’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by US$55m 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. 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 Silgan Holdings to produce a higher profit next year, all else being equal.

Our Take On Silgan Holdings’s Profit Performance

Because unusual items detracted from Silgan Holdings’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Silgan Holdings’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 38% per year over the last three years. At the end of the day, it’s essential to consider more than just the factors above, if you want to understand the company properly. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. So feel free to check out our free graph representing analyst forecasts.

This note has only looked at a single factor that sheds light on the nature of Silgan Holdings’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 that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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