We're Not So Sure You Should Rely on Crookes Brothers's (JSE:CKS) Statutory Earnings

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Crookes Brothers (JSE:CKS).

We like the fact that Crookes Brothers made a profit of R45.5m on its revenue of R677.9m, in the last year.

See our latest analysis for Crookes Brothers

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. This article will focus on the impact unusual items have had on Crookes Brothers' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Crookes Brothers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Crookes Brothers' profit received a boost of R31m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that Crookes Brothers' positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Crookes Brothers' Profit Performance

As we discussed above, we think the significant positive unusual item makes Crookes Brothers'earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Crookes Brothers' underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 Crookes Brothers as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Crookes Brothers you should be mindful of and 1 of these is concerning.

This note has only looked at a single factor that sheds light on the nature of Crookes Brothers' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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