Are China National Building Material's (HKG:3323) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
November 24, 2020
SEHK:3323

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. This article will consider whether China National Building Material's (HKG:3323) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months China National Building Material made a profit of CN¥12.2b on revenue of CN¥251.9b. One positive is that it has grown both its profit and its revenue, over the last few years.

Check out our latest analysis for China National Building Material

earnings-and-revenue-history
SEHK:3323 Earnings and Revenue History November 25th 2020

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 focus on the impact unusual items have had on China National Building Material's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

For anyone who wants to understand China National Building Material's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥6.5b 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, after all, that's exactly what the accounting terminology implies. If China National Building Material doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On China National Building Material's Profit Performance

Because unusual items detracted from China National Building Material's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that China National Building Material's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for China National Building Material you should know about.

Today we've zoomed in on a single data point to better understand the nature of China National Building Material'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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