Shareholders appeared unconcerned with Henglin Home Furnishings Co.,Ltd's (SHSE:603661) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Henglin Home FurnishingsLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥136m due 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. 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 Henglin Home FurnishingsLtd to produce a higher profit next year, all else being equal.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On Henglin Home FurnishingsLtd's Profit Performance
Because unusual items detracted from Henglin Home FurnishingsLtd'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 Henglin Home FurnishingsLtd's 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Henglin Home FurnishingsLtd has 4 warning signs (and 1 which is significant) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of Henglin Home FurnishingsLtd'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. 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.