Should You Use 361 Degrees International's (HKG:1361) Statutory Earnings To Analyse It?

By
Simply Wall St
Published
November 20, 2020
SEHK:1361

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 361 Degrees International's (HKG:1361) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months 361 Degrees International made a profit of CN¥367.0m on revenue of CN¥5.08b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

Check out our latest analysis for 361 Degrees International

earnings-and-revenue-history
SEHK:1361 Earnings and Revenue History November 20th 2020

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 361 Degrees International's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

To properly understand 361 Degrees International's profit results, we need to consider the CN¥65m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If 361 Degrees International doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On 361 Degrees International's Profit Performance

We'd posit that 361 Degrees International's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that 361 Degrees International's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 9.0% 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. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. Luckily, you can check out what analysts are forecasting by clicking here.

This note has only looked at a single factor that sheds light on the nature of 361 Degrees International's profit. But there are plenty of other ways to inform your opinion of a company. 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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