Da Yu Financial Holdings' (HKG:1073) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Da Yu Financial Holdings Limited's (HKG:1073) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for Da Yu Financial Holdings

How Do Unusual Items Influence Profit?

For anyone who wants to understand Da Yu Financial Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$11m due 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 Da Yu Financial Holdings 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 Da Yu Financial Holdings.

Our Take On Da Yu Financial Holdings' Profit Performance

Unusual items (expenses) detracted from Da Yu Financial Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Da Yu Financial Holdings' earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Da Yu Financial Holdings at this point in time. In terms of investment risks, we've identified 3 warning signs with Da Yu Financial Holdings, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Da Yu Financial Holdings' 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.
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