Why Skyworth Group's (HKG:751) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Skyworth Group Limited's (HKG:751) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Skyworth Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥113m worth of 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. If Skyworth Group doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Skyworth Group's Profit Performance

Arguably, Skyworth Group's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Skyworth Group's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into Skyworth Group, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Skyworth Group and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Skyworth Group's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.