China ITS (Holdings)'s (HKG:1900) Conservative Accounting Might Explain Soft Earnings

The most recent earnings report from China ITS (Holdings) Co., Ltd. (HKG:1900) was disappointing for shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

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The Impact Of Unusual Items On Profit

To properly understand China ITS (Holdings)'s profit results, we need to consider the CN¥32m 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. 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. If China ITS (Holdings) doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China ITS (Holdings).

Our Take On China ITS (Holdings)'s Profit Performance

Because unusual items detracted from China ITS (Holdings)'s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think China ITS (Holdings)'s earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - China ITS (Holdings) has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of China ITS (Holdings)'s 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 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.