The market wasn't impressed with the soft earnings from G.A. Holdings Limited (HKG:8126) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

See our latest analysis for G.A. Holdings

How Do Unusual Items Influence Profit?

For anyone who wants to understand G.A. Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$7.8m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 that's as you'd expect, given these boosts are described as 'unusual'. If G.A. Holdings doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of G.A. Holdings.

Our Take On G.A. Holdings' Profit Performance

We'd posit that G.A. Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that G.A. Holdings' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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 G.A. Holdings at this point in time. For instance, we've identified 4 warning signs for G.A. Holdings (2 are a bit unpleasant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of G.A. Holdings' 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 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.