We're Not So Sure You Should Rely on China Animation Characters's (HKG:1566) Statutory Earnings
Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether China Animation Characters's (HKG:1566) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months China Animation Characters made a profit of HK$27.8m on revenue of HK$443.5m. 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 China Animation Characters
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 China Animation Characters's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Animation Characters.
How Do Unusual Items Influence Profit?
We can't deny that higher profits generally leave us optmistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly suprising, given the name. We can see that China Animation Characters's positive unusual items were quite significant relative to its profit in the year to September 2019. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On China Animation Characters's Profit Performance
As we discussed above, we think the significant positive unusual item makes China Animation Characters's earnings a poor guide to its underlying profitability. For this reason, we think that China Animation Characters's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in 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. While earnings are important, another area to consider is the balance sheet. You can seeour latest analysis on China Animation Characters's balance sheet health here.
Today we've zoomed in on a single data point to better understand the nature of China Animation Characters's 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.