Does Vedan International (Holdings)'s (HKG:2317) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Vedan International (Holdings) (HKG:2317).

It's good to see that over the last twelve months Vedan International (Holdings) made a profit of US$9.30m on revenue of US$356.6m. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

View our latest analysis for Vedan International (Holdings)

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Vedan International (Holdings)'s most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Vedan International (Holdings).

How Do Unusual Items Influence Profit?

For anyone who wants to understand Vedan International (Holdings)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$3.6m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Vedan International (Holdings) to produce a higher profit next year, all else being equal.

Our Take On Vedan International (Holdings)'s Profit Performance

Unusual items (expenses) detracted from Vedan International (Holdings)'s earnings over the last year, but we might see an improvement next year. Because of this, we think Vedan International (Holdings)'s earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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 Vedan International (Holdings) at this point in time. Case in point: We've spotted 3 warning signs for Vedan International (Holdings) you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Vedan International (Holdings)'s profit. But there are plenty of other ways to inform your opinion of a company. 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. 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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