Yip's Chemical Holdings Limited's (HKG:408) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Yip's Chemical Holdings' profit was reduced by HK$15m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Yip's Chemical 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 Yip's Chemical Holdings.
Our Take On Yip's Chemical Holdings' Profit Performance
Unusual items (expenses) detracted from Yip's Chemical Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Yip's Chemical Holdings' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 13% 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 Yip's Chemical Holdings at this point in time. Be aware that Yip's Chemical Holdings is showing 2 warning signs in our investment analysis and 1 of those is significant...
This note has only looked at a single factor that sheds light on the nature of Yip's Chemical Holdings' profit. 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.
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.