Are Maoye International Holdings's (HKG:848) Statutory Earnings A Good Reflection Of Its Earnings Potential?

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. This article will consider whether Maoye International Holdings' (HKG:848) statutory profits are a good guide to its underlying earnings.

While Maoye International Holdings was able to generate revenue of CN¥7.72b in the last twelve months, we think its profit result of CN¥36.9m was more important. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Maoye International Holdings

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 Maoye International Holdings' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Maoye International Holdings.

The Impact Of Unusual Items On Profit

To properly understand Maoye International Holdings' profit results, we need to consider the CN¥343m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 Maoye International Holdings' Profit Performance

Arguably, Maoye International Holdings' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Maoye International Holdings' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. If you'd like to know more about Maoye International Holdings as a business, it's important to be aware of any risks it's facing. Our analysis shows 5 warning signs for Maoye International Holdings (2 shouldn't be ignored!) and we strongly recommend you look at them before investing.

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