Everbright Grand China Assets (HKG:3699) Is Growing Earnings But Are They A Good Guide?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Everbright Grand China Assets (HKG:3699).

We like the fact that Everbright Grand China Assets made a profit of CN¥32.4m on its revenue of CN¥59.0m, in the last year. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

Check out our latest analysis for Everbright Grand China Assets

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Everbright Grand China Assets' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Everbright Grand China Assets.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Everbright Grand China Assets' profit received a boost of CN¥30m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Everbright Grand China Assets had a rather significant contribution from unusual items relative to its profit 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 Everbright Grand China Assets' Profit Performance

As we discussed above, we think the significant positive unusual item makes Everbright Grand China Assets'earnings a poor guide to its underlying profitability. For this reason, we think that Everbright Grand China Assets' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 8.9% per annum growth in EPS for the last three. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 4 warning signs for Everbright Grand China Assets and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Everbright Grand China Assets' 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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