A lackluster earnings announcement from Everbright Grand China Assets Limited (HKG:3699) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Everbright Grand China Assets' profit received a boost of CN¥5.3m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Everbright Grand China Assets' positive unusual items were quite significant relative to its profit in the year to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Everbright Grand China Assets.

Our Take On Everbright Grand China Assets' Profit Performance

As previously mentioned, Everbright Grand China Assets' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Everbright Grand China Assets' underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over 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. So while earnings quality is important, it's equally important to consider the risks facing Everbright Grand China Assets at this point in time. Every company has risks, and we've spotted 4 warning signs for Everbright Grand China Assets (of which 1 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Everbright Grand China Assets' profit. But there are plenty of other ways to inform your opinion of a company. 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.