Investors Can Find Comfort In Jy Gas' (HKG:1407) Earnings Quality

The market for Jy Gas Limited's (HKG:1407) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Jy Gas

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jy Gas' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥4.8m due 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Jy Gas to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jy Gas.

Our Take On Jy Gas' Profit Performance

Unusual items (expenses) detracted from Jy Gas' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Jy Gas' 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. If you'd like to know more about Jy Gas as a business, it's important to be aware of any risks it's facing. Our analysis shows 5 warning signs for Jy Gas (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Jy Gas' 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 with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.