It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Extendicare (TSE:EXE).
It’s good to see that over the last twelve months Extendicare made a profit of CA$3.10m on revenue of CA$1.13b. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.
See our latest analysis for Extendicare
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 Extendicare’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 Extendicare’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by CA$18m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual expenses don’t come up again, we’d therefore expect Extendicare to produce a higher profit next year, all else being equal.
Our Take On Extendicare’s Profit Performance
Unusual items (expenses) detracted from Extendicare’s earnings over the last year, but we might see an improvement next year. Because of this, we think Extendicare’s earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. At the end of the day, it’s essential to consider more than just the factors above, if you want to understand the company properly. While it’s really important to consider how well a company’s statutory earnings represent its true earnings power, it’s also worth taking a look at what analysts are forecasting for the future. Luckily, you can check out what analysts are forecsting by clicking here.
Today we’ve zoomed in on a single data point to better understand the nature of Extendicare’s 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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January 02, 2020 at 02:23AM
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Does Extendicare’s (TSE:EXE) Statutory Profit Adequately Reflect Its Underlying Profit? - Simply Wall St
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