Are Shanghai Industrial Urban Development Group's (HKG:563) Statutory Earnings A Good Guide To Its Underlying Profitability?

Statistically speaking, it is less risky to invest in profitable companies than in 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 Shanghai Industrial Urban Development Group (HKG:563).

We like the fact that Shanghai Industrial Urban Development Group made a profit of HK$440.7m on its revenue of HK$7.15b, in the last year. As you can see below, its profit has actually declined over the last three years, even though its revenue was flat.

Check out our latest analysis for Shanghai Industrial Urban Development Group

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 Shanghai Industrial Urban Development Group'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 Shanghai Industrial Urban Development Group.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Industrial Urban Development Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$183m worth of unusual items. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Shanghai Industrial Urban Development Group's Profit Performance

We'd posit that Shanghai Industrial Urban Development Group's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shanghai Industrial Urban Development Group's statutory profits are better than its underlying earnings power. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Industrial Urban Development Group at this point in time. For instance, we've identified 2 warning signs for Shanghai Industrial Urban Development Group (1 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Shanghai Industrial Urban Development Group's profit. But there are plenty of other ways to inform your opinion of a company. 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 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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