AustAsia Group's (HKG:2425) Conservative Accounting Might Explain Soft Earnings

The market for AustAsia Group Ltd.'s (HKG:2425) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for AustAsia Group

How Do Unusual Items Influence Profit?

To properly understand AustAsia Group's profit results, we need to consider the US$20m expense attributed 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect AustAsia Group to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of AustAsia Group.

Our Take On AustAsia Group's Profit Performance

Unusual items (expenses) detracted from AustAsia Group's earnings over the last year, but we might see an improvement next year. Because of this, we think AustAsia Group'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. 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 want to do dive deeper into AustAsia Group, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for AustAsia Group you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of AustAsia Group'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. 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.