Even though Hainan Development HoldingsNanhai Co., Ltd.'s (SZSE:002163) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Hainan Development HoldingsNanhai's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥49m 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 that's hardly a surprise given these line items are considered unusual. In the twelve months to December 2023, Hainan Development HoldingsNanhai had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hainan Development HoldingsNanhai.

Our Take On Hainan Development HoldingsNanhai's Profit Performance

As we discussed above, we think the significant unusual expense will make Hainan Development HoldingsNanhai's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Hainan Development HoldingsNanhai's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Hainan Development HoldingsNanhai at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Hainan Development HoldingsNanhai.

Today we've zoomed in on a single data point to better understand the nature of Hainan Development HoldingsNanhai'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.