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The market for Salzgitter AG's (ETR:SZG) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.
Check out our latest analysis for Salzgitter
How Do Unusual Items Influence Profit?
To properly understand Salzgitter's profit results, we need to consider the €24m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Salzgitter 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 Salzgitter's Profit Performance
Because unusual items detracted from Salzgitter's 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 Salzgitter's statutory profit actually understates its earnings potential! 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. So while earnings quality is important, it's equally important to consider the risks facing Salzgitter at this point in time. Every company has risks, and we've spotted 3 warning signs for Salzgitter (of which 1 is a bit unpleasant!) you should know about.
This note has only looked at a single factor that sheds light on the nature of Salzgitter'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. 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 with significant insider holdings to be useful.
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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.