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LH Group's (HKG:1978) Soft Earnings Are Actually Better Than They Appear
LH Group's (HKG:1978) Soft Earnings Are Actually Better Than They Appear
The market for LH Group Limited's (HKG:1978) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
View our latest analysis for LH Group
SEHK:1978 Earnings and Revenue History May 9th 2022Examining Cashflow Against LH Group's Earnings
In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.
As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
LH Group has an accrual ratio of -1.82 for the year to December 2021. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of HK$209m, well over the HK$90.1m it reported in profit. LH Group's free cash flow improved over the last year, which is generally good to see. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of LH Group.
How Do Unusual Items Influence Profit?
Surprisingly, given LH Group's accrual ratio implied strong cash conversion, its paper profit was actually boosted by HK$22m in unusual items. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Our Take On LH Group's Profit Performance
In conclusion, LH Group's accrual ratio suggests its statutory earnings are of good quality, but on the other hand the profits were boosted by unusual items. Based on these factors, we think that LH Group's profits are a reasonably conservative guide to its underlying profitability. If you'd like to know more about LH Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for LH Group you should know about.
Our examination of LH Group has focussed on certain factors that can make its earnings look better than they are. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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.
The market for LH Group Limited's (HKG:1978) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
中国的市场LH集团有限公司的(HKG:1978)在最近公布了疲弱的收益后,股价没有太大变动。我们的分析表明,尽管利润疲软,但业务的基础是强大的。
View our latest analysis for LH Group
查看我们对LH集团的最新分析
Examining Cashflow Against LH Group's Earnings
检查现金流与LH集团的收益
In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.
在高端金融领域,衡量一家公司将报告利润转换为自由现金流(FCF)的程度的关键比率是应计比率(来自现金流)。简单地说,这个比率是从净利润中减去FCF,然后用这个数字除以该公司在此期间的平均运营资产。这个比率向我们展示了一家公司的利润超过了它的FCF的多少。
As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
因此,负的应计比率对公司是积极的,而正的应计比率是负的。虽然应计比率为正并不是问题,这表明非现金利润达到了一定的水平,但高的应计比率可以说是一件坏事,因为它表明账面利润与现金流不匹配。值得注意的是,有一些学术证据表明,一般来说,高应计比率对短期利润来说不是一个好兆头。
LH Group has an accrual ratio of -1.82 for the year to December 2021. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of HK$209m, well over the HK$90.1m it reported in profit. LH Group's free cash flow improved over the last year, which is generally good to see. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.
在截至2021年12月的一年中,LH集团的应计比率为-1.82。因此,其法定收益非常显著地低于其自由现金流。事实上,在过去12个月里,该公司报告的自由现金流为2.09亿港元,远高于该公司报告的9010万港元的利润。在过去的一年中,LH集团的自由现金流有所改善,总体来说是好的。然而,这并不是需要考虑的全部问题。我们可以看到,不寻常的项目影响了其法定利润,从而影响了应计比率。
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of LH Group.
注:我们总是建议投资者检查资产负债表的实力。点击此处,查看我们对LH集团的资产负债表分析。
How Do Unusual Items Influence Profit?
不寻常的项目如何影响利润?
Surprisingly, given LH Group's accrual ratio implied strong cash conversion, its paper profit was actually boosted by HK$22m in unusual items. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
令人意外的是,鉴于1H集团的应计比率意味着强劲的现金转换,其账面利润实际上因不寻常的项目而增加了2200万港元。我们不能否认,更高的利润通常会让我们保持乐观,但如果利润是可持续的,我们更愿意这样做。我们对全球大多数上市公司进行了统计,不寻常的项目在性质上是一次性的,这是非常常见的。毕竟,这正是会计术语所暗示的。假设这些不同寻常的项目在本年度不会再次出现,我们因此预计明年的利润会更弱(也就是说,在没有业务增长的情况下)。
Our Take On LH Group's Profit Performance
我们对LH集团利润表现的看法
In conclusion, LH Group's accrual ratio suggests its statutory earnings are of good quality, but on the other hand the profits were boosted by unusual items. Based on these factors, we think that LH Group's profits are a reasonably conservative guide to its underlying profitability. If you'd like to know more about LH Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for LH Group you should know about.
总而言之,LH集团的应计比率表明其法定收益质量良好,但另一方面,利润受到异常项目的提振。基于这些因素,我们认为LH集团的利润是其潜在盈利能力的一个相当保守的指南。如果你想更多地了解LH集团作为一个企业,了解它所面临的任何风险是很重要的。每家公司都有风险,我们已经发现LH组的4个警示标志你应该知道。
Our examination of LH Group has focussed on certain factors that can make its earnings look better than they are. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
我们对LH集团的审查集中在某些因素上,这些因素可以使其收益看起来比实际情况更好。但还有很多其他方式可以让你了解一家公司的看法。例如,许多人认为高股本回报率是有利的商业经济指标,而另一些人则喜欢“跟着钱走”,寻找内部人士正在买入的股票。所以你可能想看看这个免费拥有高股本回报率的公司的集合,或内部人士正在购买的这份股票清单。
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.
对这篇文章有什么反馈吗?担心内容吗? 保持联系直接与我们联系。或者,也可以给编辑组发电子邮件,地址是implywallst.com。
本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。
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moomoo是Moomoo Technologies Inc.公司提供的金融信息和交易应用程序。
在美国,moomoo上的投资产品和服务由Moomoo Financial Inc.提供,一家受美国证券交易委员会(SEC)监管的持牌主体。 Moomoo Financial Inc.是金融业监管局(FINRA)和证券投资者保护公司(SIPC)的成员。
在新加坡,moomoo上的投资产品和服务是通过Moomoo Financial Singapore Pte. Ltd.提供,该公司受新加坡金融管理局(MAS)监管(牌照号码︰CMS101000) ,持有资本市场服务牌照 (CMS) ,持有财务顾问豁免(Exempt Financial Adviser)资质。本内容未经新加坡金融管理局的审查。
在澳大利亚,moomoo上的金融产品和服务是通过Futu Securities (Australia) Ltd提供,该公司是受澳大利亚证券和投资委员会(ASIC)监管的澳大利亚金融服务许可机构(AFSL No. 224663)。请阅读并理解我们的《金融服务指南》、《条款与条件》、《隐私政策》和其他披露文件,这些文件可在我们的网站 https://www.moomoo.com/au中获取。
在加拿大,通过moomoo应用提供的仅限订单执行的券商服务由Moomoo Financial Canada Inc.提供,并受加拿大投资监管机构(CIRO)监管。
在马来西亚,moomoo上的投资产品和服务是通过Moomoo Securities Malaysia Sdn. Bhd. 提供,该公司受马来西亚证券监督委员会(SC)监管(牌照号码︰eCMSL/A0397/2024) ,持有资本市场服务牌照 (CMSL) 。本内容未经马来西亚证券监督委员会的审查。
Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd., Futu Securities (Australia) Ltd, Moomoo Financial Canada Inc.,和Moomoo Securities Malaysia Sdn. Bhd.是关联公司。
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