Anglo American Platinum's (JSE:AMS) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Anglo American Platinum Limited (JSE:AMS ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

See our latest analysis for Anglo American Platinum

How Do Unusual Items Influence Profit?

To properly understand Anglo American Platinum's profit results, we need to consider the R4.4b expense attributed 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. If Anglo American Platinum doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Anglo American Platinum's Profit Performance

Because unusual items detracted from Anglo American Platinum's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Anglo American Platinum's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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 Anglo American Platinum, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Anglo American Platinum, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Anglo American Platinum's 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.