Guanghui Energy's (SHSE:600256) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Guanghui Energy Co., Ltd.'s (SHSE:600256) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Guanghui Energy

The Impact Of Unusual Items On Profit

To properly understand Guanghui Energy's profit results, we need to consider the CN¥852m 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Guanghui Energy to produce a higher profit next year, all else being equal.

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 Guanghui Energy's Profit Performance

Because unusual items detracted from Guanghui Energy's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Guanghui Energy's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 63% per year 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 while earnings quality is important, it's equally important to consider the risks facing Guanghui Energy at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Guanghui Energy.

This note has only looked at a single factor that sheds light on the nature of Guanghui Energy's profit. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.