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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Hi Sun Technology (China) (HKG:818).
We like the fact that Hi Sun Technology (China) made a profit of HK$398.0m on its revenue of HK$4.59b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, albeit not in the last year.
Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Hi Sun Technology (China)'s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hi Sun Technology (China).
How Do Unusual Items Influence Profit?
For anyone who wants to understand Hi Sun Technology (China)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$83m due 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. 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 Hi Sun Technology (China) to produce a higher profit next year, all else being equal.
Our Take On Hi Sun Technology (China)'s Profit Performance
Unusual items (expenses) detracted from Hi Sun Technology (China)'s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hi Sun Technology (China)'s statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 8.5% per year over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Hi Sun Technology (China) has 1 warning sign and it would be unwise to ignore this.
This note has only looked at a single factor that sheds light on the nature of Hi Sun Technology (China)'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 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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