International Business Machines' (NYSE:IBM) Soft Earnings Are Actually Better Than They Appear

International Business Machines Corporation's (NYSE:IBM) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for International Business Machines

How Do Unusual Items Influence Profit?

For anyone who wants to understand International Business Machines' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$3.1b 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect International Business Machines to produce a higher profit next year, all else being equal.

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 International Business Machines' Profit Performance

Because unusual items detracted from International Business Machines' 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 International Business Machines' statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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'd like to know more about International Business Machines as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for International Business Machines you should know about.

Today we've zoomed in on a single data point to better understand the nature of International Business Machines' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

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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.