Does Minmetals Land's (HKG:230) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Minmetals Land (HKG:230).

It's good to see that over the last twelve months Minmetals Land made a profit of HK$182.9m on revenue of HK$8.33b. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Minmetals Land

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Minmetals Land'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 Minmetals Land.

The Impact Of Unusual Items On Profit

To properly understand Minmetals Land's profit results, we need to consider the HK$96m 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. Assuming those unusual expenses don't come up again, we'd therefore expect Minmetals Land to produce a higher profit next year, all else being equal.

Our Take On Minmetals Land's Profit Performance

Unusual items (expenses) detracted from Minmetals Land's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Minmetals Land's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. If you'd like to know more about Minmetals Land as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Minmetals Land (1 is significant!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Minmetals Land's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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