Man Wah Holdings' (HKG:1999) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Man Wah Holdings Limited (HKG:1999 ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Man Wah Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$427m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Man Wah Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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.

Our Take On Man Wah Holdings' Profit Performance

Unusual items (expenses) detracted from Man Wah Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Man Wah Holdings' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Man Wah Holdings at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Man Wah Holdings.

Today we've zoomed in on a single data point to better understand the nature of Man Wah Holdings' 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 with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.