Should You Use Yangzijiang Shipbuilding (Holdings)'s (SGX:BS6) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Yangzijiang Shipbuilding (Holdings) (SGX:BS6).

While Yangzijiang Shipbuilding (Holdings) was able to generate revenue of CN¥16.7b in the last twelve months, we think its profit result of CN¥2.41b was more important. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Yangzijiang Shipbuilding (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 Yangzijiang Shipbuilding (Holdings)'s most recent profit results. Our data indicates that Yangzijiang Shipbuilding (Holdings) insiders have been buying shares! If you are like me, that'll make you wonder who exactly bought... and what price they paid! Soclick here to find out (using our intuitive visualisation of insider trading).

The Impact Of Unusual Items On Profit

For anyone who wants to understand Yangzijiang Shipbuilding (Holdings)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥444m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Yangzijiang Shipbuilding (Holdings) 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 Yangzijiang Shipbuilding (Holdings)'s Profit Performance

Because unusual items detracted from Yangzijiang Shipbuilding (Holdings)'s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Yangzijiang Shipbuilding (Holdings)'s statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Yangzijiang Shipbuilding (Holdings) at this point in time. Every company has risks, and we've spotted 1 warning sign for Yangzijiang Shipbuilding (Holdings) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Yangzijiang Shipbuilding (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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