Shareholders Will Be Pleased With The Quality of China Hanking Holdings' (HKG:3788) Earnings

China Hanking Holdings Limited (HKG:3788) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

View our latest analysis for China Hanking Holdings

How Do Unusual Items Influence Profit?

To properly understand China Hanking Holdings' profit results, we need to consider the CN¥33m expense attributed to unusual items. 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, after all, that's exactly what the accounting terminology implies. If China Hanking Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Hanking Holdings.

Our Take On China Hanking Holdings' Profit Performance

Because unusual items detracted from China Hanking Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think China Hanking Holdings' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite 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. So while earnings quality is important, it's equally important to consider the risks facing China Hanking Holdings at this point in time. Every company has risks, and we've spotted 2 warning signs for China Hanking Holdings (of which 1 is significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of China Hanking Holdings' 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 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.