China Hainan Rubber Industry GroupLtd's (SHSE:601118) Performance Is Even Better Than Its Earnings Suggest

China Hainan Rubber Industry Group Co.,Ltd.'s (SHSE:601118) earnings announcement last week was disappointing for investors, despite the decent profit numbers. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

View our latest analysis for China Hainan Rubber Industry GroupLtd

The Impact Of Unusual Items On Profit

To properly understand China Hainan Rubber Industry GroupLtd's profit results, we need to consider the CN¥166m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. China Hainan Rubber Industry GroupLtd took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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 China Hainan Rubber Industry GroupLtd's Profit Performance

As we discussed above, we think the significant unusual expense will make China Hainan Rubber Industry GroupLtd's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that China Hainan Rubber Industry GroupLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 3 warning signs for China Hainan Rubber Industry GroupLtd (of which 2 are a bit unpleasant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of China Hainan Rubber Industry GroupLtd'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.