Anhui Conch Cement's (HKG:914) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Anhui Conch Cement Company Limited's (HKG:914) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Anhui Conch Cement

The Power Of Non-Operating Revenue

Companies will classify their revenue streams as either operating revenue or other revenue. Oftentimes, non-operating revenue spikes are not repeated, so it makes sense to be cautious where non-operating revenue has made a very large contribution to total profit. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. It's worth noting that Anhui Conch Cement saw a big increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from CN¥28.3b last year to CN¥54.6b this year. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

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.

Our Take On Anhui Conch Cement's Profit Performance

Because Anhui Conch Cement's non-operating revenue spiked quite noticeably last year, you could argue that a focus on statutory profit would be too generous because profits may drop back in the future (when that non-operating revenue is not repeated). For this reason, we think that Anhui Conch Cement's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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 Anhui Conch Cement, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Anhui Conch Cement, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Anhui Conch Cement's 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. 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.