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The market seemed underwhelmed by the solid earnings posted by Merck KGaA (ETR:MRK) recently. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.
We check all companies for important risks. See what we found for Merck KGaA in our free report.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Merck KGaA's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €534m 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. If Merck KGaA 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 Merck KGaA's Profit Performance
Unusual items (expenses) detracted from Merck KGaA's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Merck KGaA's statutory profit actually understates its earnings potential! Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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. So feel free to check out our free graph representing analyst forecasts.
Today we've zoomed in on a single data point to better understand the nature of Merck KGaA's profit. But there are plenty of other ways to inform your opinion of a company. 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.