Are Miramar Hotel and Investment Company's (HKG:71) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Miramar Hotel and Investment Company's (HKG:71) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Miramar Hotel and Investment Company made a profit of HK$675.2m on revenue of HK$2.24b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Miramar Hotel and Investment Company

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Miramar Hotel and Investment Company's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Miramar Hotel and Investment Company.

The Impact Of Unusual Items On Profit

To properly understand Miramar Hotel and Investment Company's profit results, we need to consider the HK$56m 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Miramar Hotel and Investment Company 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 Miramar Hotel and Investment Company's Profit Performance

We'd posit that Miramar Hotel and Investment Company's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Miramar Hotel and Investment Company's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Miramar Hotel and Investment Company as a business, it's important to be aware of any risks it's facing. Our analysis shows 2 warning signs for Miramar Hotel and Investment Company (1 is concerning!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Miramar Hotel and Investment Company's 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 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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