AerCap Holdings N.V.'s (NYSE:AER) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Operating Revenue Or Not?

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. Notably, AerCap Holdings had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from US$929.7m last year to US$1.43b this year. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

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.

How Do Unusual Items Influence Profit?

Alongside that spike in non-operating revenue, it's also important to note that AerCap Holdings'profit was boosted by unusual items worth US$469m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 AerCap Holdings' Profit Performance

In the last year AerCap Holdings' non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. For the reasons mentioned above, we think that a perfunctory glance at AerCap Holdings' statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.

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.