Should You Use Kingmaker Footwear Holdings's (HKG:1170) Statutory Earnings To Analyse It?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 Kingmaker Footwear Holdings (HKG:1170).

While Kingmaker Footwear Holdings was able to generate revenue of HK$900.4m in the last twelve months, we think its profit result of HK$46.6m was more important.

Check out our latest analysis for Kingmaker Footwear 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 focus on the impact unusual items have had on Kingmaker Footwear Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kingmaker Footwear Holdings.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Kingmaker Footwear Holdings' profit was reduced by HK$11m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Kingmaker Footwear Holdings to produce a higher profit next year, all else being equal.

Our Take On Kingmaker Footwear Holdings' Profit Performance

Because unusual items detracted from Kingmaker Footwear Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Kingmaker Footwear Holdings' earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Kingmaker Footwear Holdings, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for Kingmaker Footwear Holdings (1 is potentially serious!) that we believe deserve your full attention.

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

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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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