Investors were underwhelmed by the solid earnings posted by Tongguan Gold Group Limited (HKG:340) recently. We have done some analysis and have found some comforting factors beneath the profit numbers.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Tongguan Gold Group's profit was reduced by HK$13m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Tongguan Gold 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 Tongguan Gold Group.
Our Take On Tongguan Gold Group's Profit Performance
Unusual items (expenses) detracted from Tongguan Gold Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Tongguan Gold Group's statutory profit actually understates its earnings potential! 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. If you want to do dive deeper into Tongguan Gold Group, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Tongguan Gold Group and we think they deserve your attention.
This note has only looked at a single factor that sheds light on the nature of Tongguan Gold Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.
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