Does Tejon Ranch's (NYSE:TRC) Statutory Profit Adequately Reflect Its Underlying Profit?

By
Simply Wall St
Published
December 29, 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Tejon Ranch (NYSE:TRC).

It's good to see that over the last twelve months Tejon Ranch made a profit of US$9.09m on revenue of US$48.9m. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

Check out our latest analysis for Tejon Ranch

NYSE:TRC Earnings and Revenue History December 29th 2020

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Tejon Ranch'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 Tejon Ranch's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$273k 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Tejon Ranch to produce a higher profit next year, all else being equal.

Our Take On Tejon Ranch's Profit Performance

Unusual items (expenses) detracted from Tejon Ranch's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Tejon Ranch's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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 want to do dive deeper into Tejon Ranch, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Tejon Ranch and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Tejon Ranch'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. 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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