Statistically speaking it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Exxon Mobil (NYSE:XOM).
While Exxon Mobil was able to generate revenue of US$260.8b in the last twelve months, we think its profit result of US$14.7b was more important. Happily, it has grown both its profit and revenue over the last three years (but not in the last year), as you can see in the chart below.
View our latest analysis for Exxon Mobil
Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Exxon Mobil’s most recent profit results. 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
Importantly, our data indicates that Exxon Mobil’s profit received a boost of US$1.3b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual items don’t show up again in the current year, we’d thus expect profit to be weaker next year (in the absence of business growth, that is).
Our Take On Exxon Mobil’s Profit Performance
We’d posit that Exxon Mobil’s statutory earnings aren’t a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Exxon Mobil’s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 60% per annum growth in EPS for the last three. 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. Ultimately, this article has formed an opinion based on historical data. However, it can also be great to think about what analysts are forecasting for the future. At Simply Wall St, we have analyst estimates which you can view by clicking here.
Today we’ve zoomed in on a single data point to better understand the nature of Exxon Mobil’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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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2019-12-31 10:06:33Z
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