Shareholders appeared unconcerned with China Satellite Communications Co., Ltd.'s (SHSE:601698) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.
The Impact Of Unusual Items On Profit
To properly understand China Satellite Communications' profit results, we need to consider the CN¥234m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 China Satellite Communications to produce a higher profit next year, all else being equal.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Satellite Communications.
Our Take On China Satellite Communications' Profit Performance
Unusual items (expenses) detracted from China Satellite Communications' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that China Satellite Communications' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing China Satellite Communications at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of China Satellite Communications.
This note has only looked at a single factor that sheds light on the nature of China Satellite Communications' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.