Should You Use Hung Ching Development & Construction's (TPE:2527) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in 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 Hung Ching Development & Construction (TPE:2527).

We like the fact that Hung Ching Development & Construction made a profit of NT$328.0m on its revenue of NT$2.99b, in the last year. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

See our latest analysis for Hung Ching Development & Construction

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 Hung Ching Development & Construction's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hung Ching Development & Construction.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hung Ching Development & Construction's profit was reduced by NT$51m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. If Hung Ching Development & Construction 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 Hung Ching Development & Construction's Profit Performance

Because unusual items detracted from Hung Ching Development & Construction's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Hung Ching Development & Construction's 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'd like to know more about Hung Ching Development & Construction as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Hung Ching Development & Construction (of which 1 is significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Hung Ching Development & Construction'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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