Here's Why We Don't Think China Greenland Broad Greenstate Group's (HKG:1253) Statutory Earnings Reflect Its Underlying Earnings Potential

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether China Greenland Broad Greenstate Group's (HKG:1253) statutory profits are a good guide to its underlying earnings.

While China Greenland Broad Greenstate Group was able to generate revenue of CN¥917.4m in the last twelve months, we think its profit result of CN¥73.4m was more important. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for China Greenland Broad Greenstate Group

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 China Greenland Broad Greenstate Group's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Greenland Broad Greenstate Group.

How Do Unusual Items Influence Profit?

To properly understand China Greenland Broad Greenstate Group's profit results, we need to consider the CN¥16m gain attributed to 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. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that China Greenland Broad Greenstate Group'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 China Greenland Broad Greenstate Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes China Greenland Broad Greenstate Group'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that China Greenland Broad Greenstate Group's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 63% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 4 warning signs for China Greenland Broad Greenstate Group (2 are concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of China Greenland Broad Greenstate Group'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. 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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