We're Not So Sure You Should Rely on China Infrastructure & Logistics Group's (HKG:1719) Statutory Earnings

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. This article will consider whether China Infrastructure & Logistics Group's (HKG:1719) statutory profits are a good guide to its underlying earnings.

We like the fact that China Infrastructure & Logistics Group made a profit of HK$12.7m on its revenue of HK$314.0m, in the last year. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

Check out our latest analysis for China Infrastructure & Logistics Group

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 China Infrastructure & Logistics Group's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Infrastructure & Logistics Group.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that China Infrastructure & Logistics Group's profit received a boost of HK$5.5m in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. If China Infrastructure & Logistics Group doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On China Infrastructure & Logistics Group's Profit Performance

We'd posit that China Infrastructure & Logistics Group's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that China Infrastructure & Logistics Group's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing China Infrastructure & Logistics Group at this point in time. Case in point: We've spotted 5 warning signs for China Infrastructure & Logistics Group you should be mindful of and 2 of them can't be ignored.

Today we've zoomed in on a single data point to better understand the nature of China Infrastructure & Logistics Group's profit. But there are plenty of other ways to inform your opinion of a company. 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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