Does Ceridian HCM Holding's (NYSE:CDAY) Statutory Profit Adequately Reflect Its Underlying Profit?

By
Simply Wall St
Published
October 16, 2020
NYSE:CDAY

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. This article will consider whether Ceridian HCM Holding's (NYSE:CDAY) statutory profits are a good guide to its underlying earnings.

While Ceridian HCM Holding was able to generate revenue of US$839.4m in the last twelve months, we think its profit result of US$75.3m was more important. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

View our latest analysis for Ceridian HCM Holding

earnings-and-revenue-history
NYSE:CDAY Earnings and Revenue History October 16th 2020

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. As a reuslt, we think it's important to consider how unusual items and the recent tax benefit have influenced Ceridian HCM Holding's statutory profit. 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

Importantly, our data indicates that Ceridian HCM Holding's profit was reduced by US$28m, due to unusual items, over the last year. 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. If Ceridian HCM Holding doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Ceridian HCM Holding received a tax benefit of US$53m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Ceridian HCM Holding's Profit Performance

In the last year Ceridian HCM Holding received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if Ceridian HCM Holding's profits are a reasonable reflection of its underlying profitability. If you'd like to know more about Ceridian HCM Holding as a business, it's important to be aware of any risks it's facing. When we did our research, we found 3 warning signs for Ceridian HCM Holding (1 shouldn't be ignored!) that we believe deserve your full attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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