Soft earnings didn't appear to concern King Fook Holdings Limited's (HKG:280) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

How Do Unusual Items Influence Profit?

To properly understand King Fook Holdings' profit results, we need to consider the HK$8.7m expense attributed 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect King Fook Holdings 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 King Fook Holdings.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that King Fook Holdings received a tax benefit which contributed HK$5.0m to the bottom line. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On King Fook Holdings' Profit Performance

In its last report King Fook Holdings received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if King Fook Holdings' profits are a reasonable reflection of its underlying profitability. If you'd like to know more about King Fook Holdings as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for King Fook Holdings you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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 with significant insider holdings 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.