We Think Tongdao Liepin Group's (HKG:6100) Solid Earnings Are Understated

Shareholders appeared to be happy with Tongdao Liepin Group's (HKG:6100) solid earnings report last week. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

Check out our latest analysis for Tongdao Liepin Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Tongdao Liepin Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥43m due 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, after all, that's exactly what the accounting terminology implies. In the twelve months to June 2024, Tongdao Liepin Group had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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 Tongdao Liepin Group's Profit Performance

As we discussed above, we think the significant unusual expense will make Tongdao Liepin Group's statutory profit lower than it would otherwise have been. Because of this, we think Tongdao Liepin Group's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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 Tongdao Liepin Group, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Tongdao Liepin Group, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Tongdao Liepin 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 with high insider ownership.

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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.