We're Not So Sure You Should Rely on CHTC Fong's International's (HKG:641) Statutory Earnings

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing CHTC Fong's International (HKG:641).

We like the fact that CHTC Fong's International made a profit of HK$181.3m on its revenue of HK$2.42b, in the last year.

See our latest analysis for CHTC Fong's International

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on CHTC Fong's International's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CHTC Fong's International.

The Impact Of Unusual Items On Profit

For anyone who wants to understand CHTC Fong's International's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$300m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that CHTC Fong's International's positive unusual items were quite significant relative to its profit in the year to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On CHTC Fong's International's Profit Performance

As we discussed above, we think the significant positive unusual item makes CHTC Fong's International'searnings a poor guide to its underlying profitability. For this reason, we think that CHTC Fong's International's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 5 warning signs for CHTC Fong's International (of which 2 are significant!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of CHTC Fong's International's 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. 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. 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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