Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and its not always clear whether statutory profits are a good guide, going forward. Today well focus on whether this years statutory profits are a good guide to understanding China Aerospace International Holdings (HKG:31).

We like the fact that China Aerospace International Holdings made a profit of HK$338.4m on its revenue of HK$3.45b, in the last year. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for China Aerospace International Holdings

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted China Aerospace International Holdingss most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Aerospace International Holdings.

To properly understand China Aerospace International Holdingss profit results, we need to consider the HK$133m gain attributed to unusual items. While its 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 its very common for unusual items to be once-off in nature. And thats as youd expect, given these boosts are described as unusual. China Aerospace International Holdings had a rather significant contribution from unusual items relative to its profit to December 2019. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

As we discussed above, we think the significant positive unusual item makes China Aerospace International Holdingss earnings a poor guide to its underlying profitability. For this reason, we think that China Aerospace International Holdingss statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. Of course, weve 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. In light of this, if youd like to do more analysis on the company, its vital to be informed of the risks involved. When we did our research, we found 3 warning signs for China Aerospace International Holdings (1 is significant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of China Aerospace International Holdingss 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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We Wouldnt Rely On China Aerospace International Holdingss (HKG:31) Statutory Earnings As A Guide - Simply Wall St