Time Watch Investments' (HKG:2033) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Time Watch Investments Limited's (HKG:2033) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Time Watch Investments

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Time Watch Investments' profit was reduced by HK$24m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Time Watch Investments took a rather significant hit from unusual items in the year to June 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Time Watch Investments.

Our Take On Time Watch Investments' Profit Performance

As we discussed above, we think the significant unusual expense will make Time Watch Investments' statutory profit lower than it would otherwise have been. Because of this, we think Time Watch Investments' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Time Watch Investments at this point in time. Case in point: We've spotted 4 warning signs for Time Watch Investments you should be mindful of and 1 of these can't be ignored.

Today we've zoomed in on a single data point to better understand the nature of Time Watch Investments' 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 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.