We Wouldn't Rely On CK Life Sciences Int'l. (Holdings)'s (HKG:775) Statutory Earnings As A Guide

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether CK Life Sciences Int'l. (Holdings)'s (HKG:775) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months CK Life Sciences Int'l. (Holdings) made a profit of HK$97.9m on revenue of HK$4.75b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for CK Life Sciences Int'l. (Holdings)

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted CK Life Sciences Int'l. (Holdings)'s most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CK Life Sciences Int'l. (Holdings).

How Do Unusual Items Influence Profit?

Importantly, our data indicates that CK Life Sciences Int'l. (Holdings)'s profit received a boost of HK$99m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that CK Life Sciences Int'l. (Holdings)'s positive unusual items were quite significant relative to its profit in the year to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On CK Life Sciences Int'l. (Holdings)'s Profit Performance

As previously mentioned, CK Life Sciences Int'l. (Holdings)'s large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that CK Life Sciences Int'l. (Holdings)'s underlying earnings power is lower than its statutory profit. 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. 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. When we did our research, we found 4 warning signs for CK Life Sciences Int'l. (Holdings) (2 don't sit too well with us!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of CK Life Sciences Int'l. (Holdings)'s profit. But there are plenty of other ways to inform your opinion of a company. 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. 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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