Does Tianjin Development Holdings's (HKG:882) 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Tianjin Development Holdings (HKG:882).

It's good to see that over the last twelve months Tianjin Development Holdings made a profit of HK$220.2m on revenue of HK$4.12b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

Check out our latest analysis for Tianjin Development Holdings

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Tianjin Development Holdings' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tianjin Development Holdings.

The Impact Of Unusual Items On Profit

To properly understand Tianjin Development Holdings' profit results, we need to consider the HK$42m expense attributed 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. Assuming those unusual expenses don't come up again, we'd therefore expect Tianjin Development Holdings to produce a higher profit next year, all else being equal.

Our Take On Tianjin Development Holdings' Profit Performance

Unusual items (expenses) detracted from Tianjin Development Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Tianjin Development Holdings' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Tianjin Development Holdings, you'd also look into what risks it is currently facing. For example, Tianjin Development Holdings has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Tianjin Development Holdings' 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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