Investors Can Find Comfort In United Parcel Service's (NYSE:UPS) Earnings Quality

United Parcel Service, Inc.'s (NYSE:UPS) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. However, we think the company is showing some signs that things are more promising than they seem.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that United Parcel Service's profit was reduced by US$1.9b, 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. 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 United Parcel Service 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 United Parcel Service's Profit Performance

Unusual items (expenses) detracted from United Parcel Service's earnings over the last year, but we might see an improvement next year. Because of this, we think United Parcel Service's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. If you'd like to know more about United Parcel Service as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with United Parcel Service, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of United Parcel Service's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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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