Are LyondellBasell Industries's (NYSE:LYB) Statutory Earnings A Good Guide To Its Underlying Profitability?

By
Simply Wall St
Published
December 02, 2020

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing LyondellBasell Industries (NYSE:LYB).

We like the fact that LyondellBasell Industries made a profit of US$1.17b on its revenue of US$28.0b, in the last year. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for LyondellBasell Industries

NYSE:LYB Earnings and Revenue History December 2nd 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 LyondellBasell Industries' 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

To properly understand LyondellBasell Industries' profit results, we need to consider the US$698m expense attributed 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 LyondellBasell Industries to produce a higher profit next year, all else being equal.

Our Take On LyondellBasell Industries' Profit Performance

Because unusual items detracted from LyondellBasell Industries' 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 LyondellBasell Industries' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 5 warning signs for LyondellBasell Industries you should know about.

This note has only looked at a single factor that sheds light on the nature of LyondellBasell Industries' 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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