Investors Can Find Comfort In China Satellite Communications' (SHSE:601698) Earnings Quality

Soft earnings didn't appear to concern China Satellite Communications Co., Ltd.'s (SHSE:601698) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for China Satellite Communications

The Impact Of Unusual Items On Profit

Importantly, our data indicates that China Satellite Communications' profit was reduced by CN¥236m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. If China Satellite Communications doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Satellite Communications.

Our Take On China Satellite Communications' Profit Performance

Because unusual items detracted from China Satellite Communications' 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 China Satellite Communications' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing China Satellite Communications at this point in time. While conducting our analysis, we found that China Satellite Communications has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of China Satellite Communications' 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 that insiders are buying to be useful.

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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.