Wenzhou Kangning Hospital's (HKG:2120) Conservative Accounting Might Explain Soft Earnings

Wenzhou Kangning Hospital Co., Ltd.'s (HKG:2120) stock was strong despite it releasing a soft earnings report last week. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

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How Do Unusual Items Influence Profit?

To properly understand Wenzhou Kangning Hospital's profit results, we need to consider the CN¥43m expense attributed 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. 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 Wenzhou Kangning Hospital 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 Wenzhou Kangning Hospital .

Our Take On Wenzhou Kangning Hospital's Profit Performance

Because unusual items detracted from Wenzhou Kangning Hospital's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Wenzhou Kangning Hospital's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for Wenzhou Kangning Hospital and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Wenzhou Kangning Hospital'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. 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 with significant insider holdings 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.