Henan Tong-Da Cable Co., Ltd.'s (SZSE:002560) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.
How Do Unusual Items Influence Profit?
To properly understand Henan Tong-Da Cable's profit results, we need to consider the CN¥72m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Henan Tong-Da Cable doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Henan Tong-Da Cable.
Our Take On Henan Tong-Da Cable's Profit Performance
Unusual items (expenses) detracted from Henan Tong-Da Cable's earnings over the last year, but we might see an improvement next year. Because of this, we think Henan Tong-Da Cable's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 37% annually, over the last three years. 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. If you'd like to know more about Henan Tong-Da Cable as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 4 warning signs for Henan Tong-Da Cable you should be mindful of and 2 of these are concerning.
This note has only looked at a single factor that sheds light on the nature of Henan Tong-Da Cable's 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 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.
