Kwong Man Kee Group's (HKG:8023) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Kwong Man Kee Group Limited's (HKG:8023) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Kwong Man Kee Group's profit was reduced by HK$2.6m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Kwong Man Kee 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 Kwong Man Kee Group.

Our Take On Kwong Man Kee Group's Profit Performance

Unusual items (expenses) detracted from Kwong Man Kee Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Kwong Man Kee Group's statutory profit actually understates its earnings potential! And the EPS is up 10% annually, over the last three years. 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. If you'd like to know more about Kwong Man Kee Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Kwong Man Kee Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of Kwong Man Kee Group'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. 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 with significant insider holdings 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.