The market for China Boton Group Company Limited's (HKG:3318) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.
The Impact Of Unusual Items On Profit
For anyone who wants to understand China Boton Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥63m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect China Boton Group 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 China Boton Group.
Our Take On China Boton Group's Profit Performance
Unusual items (expenses) detracted from China Boton Group's earnings over the last year, but we might see an improvement next year. Because of this, we think China Boton Group's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that China Boton Group has 4 warning signs (2 are a bit unpleasant!) that deserve your attention before going any further with your analysis.
Today we've zoomed in on a single data point to better understand the nature of China Boton Group's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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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.