Even though Datang International Power Generation Co., Ltd.'s (HKG:991) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.
How Do Unusual Items Influence Profit?
To properly understand Datang International Power Generation's profit results, we need to consider the CN¥984m expense attributed to unusual items. 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 Datang International Power Generation 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 Datang International Power Generation.
Our Take On Datang International Power Generation's Profit Performance
Unusual items (expenses) detracted from Datang International Power Generation's earnings over the last year, but we might see an improvement next year. Because of this, we think Datang International Power Generation's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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 Datang International Power Generation at this point in time. At Simply Wall St, we found 2 warning signs for Datang International Power Generation and we think they deserve your attention.
This note has only looked at a single factor that sheds light on the nature of Datang International Power Generation's 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. 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.
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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.