As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Yan Tat Group Holdings' (HKG:1480) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months Yan Tat Group Holdings made a profit of HK$51.9m on revenue of HK$573.3m. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.
Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Yan Tat Group Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yan Tat Group Holdings.
How Do Unusual Items Influence Profit?
To properly understand Yan Tat Group Holdings' profit results, we need to consider the HK$3.2m gain attributed to 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Yan Tat Group Holdings' Profit Performance
We'd posit that Yan Tat Group Holdings' 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 Yan Tat Group Holdings' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Yan Tat Group Holdings you should know about.
Today we've zoomed in on a single data point to better understand the nature of Yan Tat Group Holdings' profit. But there are plenty of other ways to inform your opinion of a company. 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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