We're Not So Sure You Should Rely on Hotel Grand Central's (SGX:H18) Statutory Earnings

Broadly speaking, profitable businesses are less risky than 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 Hotel Grand Central (SGX:H18).

We like the fact that Hotel Grand Central made a profit of S$20.0m on its revenue of S$127.7m, in the last year. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Hotel Grand Central

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 Hotel Grand Central's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hotel Grand Central.

How Do Unusual Items Influence Profit?

To properly understand Hotel Grand Central's profit results, we need to consider the S$5.2m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Hotel Grand Central 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 Hotel Grand Central's Profit Performance

Arguably, Hotel Grand Central's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hotel Grand Central's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 3 warning signs we've spotted with Hotel Grand Central (including 1 which can't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Hotel Grand Central'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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