High frequency of exceptional items in the income statements of some companies obscures their earnings visibility
20-Apr-2015 •Vikas Vardhan
Sometimes exceptional items appear in profit and loss statements of companies. As the name suggests, they are extraordinary transactions or events, other than the operations of a business, which do not occur frequently; for example, losses or a gains from the sale of assets, losses due to fire or losses due to theft. Generally, while analysing a company, exceptional items are skipped because they are expected not to occur again in the future. But we came across some companies which report exceptional items quite frequently. Such companies' net profits or losses are difficult to predict and are very irregular.
The table shows the list of companies which have reported exceptional gains or losses in almost all the past five years. In these companies, exceptional gains or losses make up a significant portion of the net profit or loss. Exceptional items are no more exceptional to the companies enumerated below and hence understanding their future prospects becomes a very difficult task. Exceptional items occur usually when a company has been restructuring itself for over a long period of time, as seen in the case of Suzlon Energy, which has been selling its assets to repay its staggering debt. Secondly, exceptional items also occur frequently when a company has a high revenue exposure to foreign countries as a result of fluctuating currencies, or when it's a commodity-based company like Tata Steel, Southern Petrochemical and MMTC.
|Company Name||Exceptional gain/loss TTM||FY-14||FY-13||FY-12||FY-11|
|Shree Renuka Sugars||-138||-632||-299||38||132|
|Indo Rama Synthetics||24||-100||-39||-65||8|
|Jubilant Life Sciences||22||-214||-192||-349||-41|
|All amount in ₹crore|