Does Qinhuangdao Port's (HKG:3369) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Qinhuangdao Port (HKG:3369).

It's good to see that over the last twelve months Qinhuangdao Port made a profit of CN¥1.04b on revenue of CN¥6.39b. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Qinhuangdao Port

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Qinhuangdao Port's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qinhuangdao Port.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Qinhuangdao Port's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥588m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Qinhuangdao Port doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Qinhuangdao Port's Profit Performance

Unusual items (expenses) detracted from Qinhuangdao Port's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Qinhuangdao Port's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 47% in the last year. 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. To that end, you should learn about the 4 warning signs we've spotted with Qinhuangdao Port (including 1 which is a bit unpleasant).

Today we've zoomed in on a single data point to better understand the nature of Qinhuangdao Port's 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. 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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