Should You Use Chinney Kin Wing Holdings's (HKG:1556) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Chinney Kin Wing Holdings (HKG:1556).

It's good to see that over the last twelve months Chinney Kin Wing Holdings made a profit of HK$63.0m on revenue of HK$1.47b. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

Check out our latest analysis for Chinney Kin Wing Holdings

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Chinney Kin Wing Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chinney Kin Wing Holdings.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Chinney Kin Wing Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$5.6m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Chinney Kin Wing Holdings' Profit Performance

Arguably, Chinney Kin Wing Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Chinney Kin Wing Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 16% EPS growth in 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. Our analysis shows 3 warning signs for Chinney Kin Wing Holdings (1 shouldn't be ignored!) and we strongly recommend you look at these bad boys before investing.

Today we've zoomed in on a single data point to better understand the nature of Chinney Kin Wing Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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. 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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