Why Medialink Group's (HKG:2230) Earnings Are Better Than They Seem

Shareholders appeared to be happy with Medialink Group Limited's (HKG:2230) solid earnings report last week. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

Check out our latest analysis for Medialink Group

How Do Unusual Items Influence Profit?

To properly understand Medialink Group's profit results, we need to consider the HK$60m expense attributed 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 that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2023, Medialink Group had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Medialink Group.

Our Take On Medialink Group's Profit Performance

As we discussed above, we think the significant unusual expense will make Medialink Group's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Medialink Group's statutory profit actually understates its earnings potential! And the EPS is up 42% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 4 warning signs for Medialink Group you should be mindful of and 1 of them is concerning.

Today we've zoomed in on a single data point to better understand the nature of Medialink 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. 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. 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.