Are Tiande Chemical Holdings's (HKG:609) Statutory Earnings A Good Reflection Of Its Earnings Potential?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Tiande Chemical Holdings' (HKG:609) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Tiande Chemical Holdings made a profit of CN¥81.1m on revenue of CN¥1.37b.

See our latest analysis for Tiande Chemical Holdings

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Tiande Chemical Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tiande Chemical Holdings.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Tiande Chemical Holdings' profit was reduced by CN¥7.6m, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. If Tiande Chemical Holdings 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 Tiande Chemical Holdings' Profit Performance

Unusual items (expenses) detracted from Tiande Chemical Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Tiande Chemical 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. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Tiande Chemical Holdings, you'd also look into what risks it is currently facing. For example, we've found that Tiande Chemical Holdings has 2 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Tiande Chemical Holdings' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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