Shareholders Will Be Pleased With The Quality of Great China Holdings (Hong Kong)'s (HKG:21) Earnings

Great China Holdings (Hong Kong) Limited (HKG:21) recently posted some strong earnings, and the market responded positively. Our analysis found some more factors that we think are good for shareholders.

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How Do Unusual Items Influence Profit?

To properly understand Great China Holdings (Hong Kong)'s profit results, we need to consider the HK$12m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Great China Holdings (Hong Kong) took a rather significant hit from unusual items in the year to December 2024. 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 Great China Holdings (Hong Kong).

Our Take On Great China Holdings (Hong Kong)'s Profit Performance

As we discussed above, we think the significant unusual expense will make Great China Holdings (Hong Kong)'s statutory profit lower than it would otherwise have been. Because of this, we think Great China Holdings (Hong Kong)'s underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Great China Holdings (Hong Kong) at this point in time. Case in point: We've spotted 2 warning signs for Great China Holdings (Hong Kong) you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Great China Holdings (Hong Kong)'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 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.