Should You Use Mainland Headwear Holdings's (HKG:1100) Statutory Earnings To Analyse It?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Mainland Headwear Holdings (HKG:1100).

While Mainland Headwear Holdings was able to generate revenue of HK$1.06b in the last twelve months, we think its profit result of HK$18.6m was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Mainland Headwear Holdings

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 discuss how unusual items have impacted Mainland Headwear Holdings' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mainland Headwear Holdings.

The Impact Of Unusual Items On Profit

To properly understand Mainland Headwear Holdings' profit results, we need to consider the HK$14m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Mainland Headwear Holdings to produce a higher profit next year, all else being equal.

Our Take On Mainland Headwear Holdings' Profit Performance

Unusual items (expenses) detracted from Mainland Headwear Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Mainland Headwear Holdings' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Mainland Headwear Holdings as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 7 warning signs for Mainland Headwear Holdings (of which 1 is significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Mainland Headwear 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. 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.

When trading Mainland Headwear Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.