Does Yeebo (International Holdings)'s (HKG:259) Statutory Profit Adequately Reflect Its Underlying Profit?

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Yeebo (International Holdings) (HKG:259).

While Yeebo (International Holdings) was able to generate revenue of HK$797.8m in the last twelve months, we think its profit result of HK$142.0m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Yeebo (International Holdings)

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 discuss how unusual items have impacted Yeebo (International Holdings)'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 Yeebo (International Holdings).

How Do Unusual Items Influence Profit?

To properly understand Yeebo (International Holdings)'s profit results, we need to consider the HK$2.2m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Yeebo (International Holdings) took a rather significant hit from unusual items in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Yeebo (International Holdings)'s Profit Performance

As we discussed above, we think the significant unusual expense will make Yeebo (International Holdings)'s statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Yeebo (International Holdings)'s statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Yeebo (International Holdings) (of which 1 is significant!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Yeebo (International 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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