Should You Use Jiashili Group's (HKG:1285) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. 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 Jiashili Group's (HKG:1285) statutory profits are a good guide to its underlying earnings.

While Jiashili Group was able to generate revenue of CN¥1.58b in the last twelve months, we think its profit result of CN¥94.2m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

Check out our latest analysis for Jiashili Group

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Jiashili Group's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiashili Group.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiashili Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥92m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Jiashili Group took a rather significant hit from unusual items in the year to June 2020. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Jiashili Group's Profit Performance

As we discussed above, we think the significant unusual expense will make Jiashili Group's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Jiashili Group's statutory profit actually understates its earnings potential! And the EPS is up 23% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for Jiashili Group and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Jiashili Group'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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