China Dredging Environment Protection Holdings Limited's (HKG:871) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for China Dredging Environment Protection Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand China Dredging Environment Protection Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥51m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. China Dredging Environment Protection Holdings had a rather significant contribution from unusual items relative to its profit to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Dredging Environment Protection Holdings.

Our Take On China Dredging Environment Protection Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes China Dredging Environment Protection Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that China Dredging Environment Protection Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that China Dredging Environment Protection Holdings has 4 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of China Dredging Environment Protection Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.