The shareholders did not seem to be enthusiastic The (TSE:BEPC) latest earnings report, despite strong profit numbers. Our analysis suggests they might be concerned about some underlying details.
Check out our latest analysis for Brookfield Renewable
The power of non-operating revenue
For most companies, some sources of income, such as government grants, are recorded as non-operating revenue while the core business generates operating revenue. Spikes in non-operating revenue are often non-recurring, so caution should be exercised when non-operating revenue has been a very large contributor to overall earnings. However, we note that sudden increases in non-operating revenue sometimes lead to an unsustainable increase in earnings. Brookfield Renewable in particular saw a significant increase in non-operating revenue over the last year. In fact, non-operating revenue rose from US$75.0m last year to US$599.0m this year. The high non-operating revenue is problematic because when it’s non-recurring, the company’s overall revenue (and profitability) declines. Sometimes you can get a better picture of a company’s underlying earnings potential by excluding unusual increases in non-operating revenue.
You may be wondering what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive chart depicting future profitability based on their estimates.
How do unusual items affect profits?
In addition to this increase in non-operating revenue, we should also consider the US$799 million increase in profit caused by unusual items last year. While it’s always nice to have higher profit, sometimes a large contribution from unusual items dampens our enthusiasm. When we analyzed the vast majority of publicly traded companies worldwide, we found that significant unusual items are often not repeated. And that’s exactly what the accounting terminology implies. Brookfield Renewable had a fairly significant contribution from unusual items relative to its profit through June 2024. Therefore, we can expect the unusual items to make its statutory profit significantly higher than it would otherwise be.
Our assessment of Brookfield Renewable’s earnings development
Over the last year, non-operating revenue has really boosted Brookfield Renewable, but not in a way that will necessarily be sustainable. In addition, unusual items have also made a nice positive contribution to earnings, which could well decline next year (if everything else remains unchanged) if these phenomena are not repeated. Upon closer inspection, the above factors give us the strong impression that Brookfield Renewable’s underlying earnings power is not as good as it may appear based on statutory profit numbers. So if you want to dig deeper into this stock, it is important to consider all the risks it faces. During our research, we found 4 warning signs for Brookfield Renewable (2 are significant!) that we believe deserve your full attention.
In this article, we’ve looked at a number of factors that can affect the usefulness of earnings numbers, and we’ve done so with caution. However, there are many other ways to form an opinion about a company. For example, many people look to a high return on equity as an indication of a favorable business situation, while others like to “follow the money” and look for stocks that insiders are buying. You might want to check this out. free Collection of companies with high return on equity or this list of stocks with high insider ownership.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
