Are Beijing Enterprises Environment Group’s (HKG:154) Statutory Earnings A Good Guide To Its Underlying Profitability?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it’s not always clear whether statutory profits are a good guide, going forward. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Beijing Enterprises Environment Group (HKG:154).

It’s good to see that over the last twelve months Beijing Enterprises Environment Group made a profit of HK$222.2m on revenue of HK$1.38b. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

View our latest analysis for Beijing Enterprises Environment Group

SEHK:154 Income Statement May 23rd 2020
SEHK:154 Income Statement May 23rd 2020

Importantly, statutory profits are not always the best tool for understanding a company’s true earnings power, so it’s well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Beijing Enterprises Environment Group’s most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Beijing Enterprises Environment Group.

The Impact Of Unusual Items On Profit

To properly understand Beijing Enterprises Environment Group’s profit results, we need to consider the HK$114m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. If Beijing Enterprises Environment Group doesn’t see those unusual expenses repeat, then all else being equal we’d expect its profit to increase over the coming year.

Our Take On Beijing Enterprises Environment Group’s Profit Performance

Because unusual items detracted from Beijing Enterprises Environment Group’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Beijing Enterprises Environment Group’s earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it’s essential to consider more than just the factors above, if you want to understand the company properly. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. Case in point: We’ve spotted 4 warning signs for Beijing Enterprises Environment Group you should be mindful of and 1 of these is concerning.

Today we’ve zoomed in on a single data point to better understand the nature of Beijing Enterprises Environment Group’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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 that insiders are buying to be useful.

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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. 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. Thank you for reading.