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Investors signalled that they were pleased with Coats Group plc's (LON:COA) most recent earnings report. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.
Check out our latest analysis for Coats Group
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Coats Group's profit was reduced by US$25m, due to unusual items, over the last year. 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. If Coats Group 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 Coats Group's Profit Performance
Unusual items (expenses) detracted from Coats Group's earnings over the last year, but we might see an improvement next year. Because of this, we think Coats Group's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 14% per year over the last three years. 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 Coats Group at this point in time. Case in point: We've spotted 2 warning signs for Coats Group you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Coats Group'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. 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.