Fox's (NASDAQ:FOXA) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Fox Corporation's (NASDAQ:FOXA) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Fox

The Impact Of Unusual Items On Profit

For anyone who wants to understand Fox's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$977m due 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. Fox took a rather significant hit from unusual items in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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.

Our Take On Fox's Profit Performance

As we discussed above, we think the significant unusual expense will make Fox's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Fox's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 5 warning signs we've spotted with Fox (including 1 which is a bit unpleasant).

Today we've zoomed in on a single data point to better understand the nature of Fox's 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.