Why Guangdong Highsun GroupLtd's (SZSE:000861) Earnings Are Better Than They Seem

Guangdong Highsun Group Co.,Ltd.'s (SZSE:000861) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

View our latest analysis for Guangdong Highsun GroupLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Guangdong Highsun GroupLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥67m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Guangdong Highsun GroupLtd to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong Highsun GroupLtd.

Our Take On Guangdong Highsun GroupLtd's Profit Performance

Because unusual items detracted from Guangdong Highsun GroupLtd'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 Guangdong Highsun GroupLtd's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Guangdong Highsun GroupLtd is showing 3 warning signs in our investment analysis and 2 of those can't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Guangdong Highsun 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. 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.